The Uniform Law Commission’s model virtual currency act has been introduced in California
What this would (and wouldn’t) mean for cryptocurrency businesses in the state
In February, the Uniform Law Commission’s model act for virtual currency business licensing was introduced in the California Assembly as AB 1489. Although it is now October and the Assembly’s legislative session is over for the year, some are ringing alarm bells about this bill, calling it an existential threat to the crypto industry, and comparing it to the New York BitLicense. Additionally, although we believe we’ve been very clear, Coin Center’s position on AB 1489 (and the ULC Model Act, which we helped draft) has been questioned. So let’s try to shed a little light.
First, to say that the ULC model act is anything at all like a “New York-style BitLicense” is misleading at best. Take a look at the chart below and compare AB 1489 (based on the ULC Model Act) to the NY BitLicense. There is no comparison. Indeed, the main reason we helped draft the model act was to ensure that a reasonable alternative to the Bitlicense existed for states who were determined to craft new licensing legislation for cryptocurrency businesses. We knew that states were looking around for licensing models to emulate because in February 2015 the real deal New York BitLicense was introduced almost verbatim in the California Assembly. That was truly something to sound alarm bells about and I’m proud to say Coin Center successfully intervened to modify and later defeat that bill—a true California BitLicense.
Second, to say that in California today cryptocurrency firms are clearly exempt from licensing is, again, misleading at best. More accurately what we see in California today is a dangerous lack of clarity. California has a money transmission licensing law like 53 other states and territories. As with several states, the text of the law could easily be interpreted to require cryptocurrency companies to get licensed. Unlike other states, the regulator has refused to either grant licenses to cryptocurrency companies or publicly say that licensing requirements don’t apply (as Texas has done, for example). At the moment, the California Department of Business Oversight’s (DBO) inaction creates a de facto laissez faire approach, but the DBO could change its mind at any moment and not only require licenses from crypto firms, but potentially penalize firms for previously operating without a license. At the moment crypto firms are operating unlicensed not because there is an explicit exclusion or exemption from licensing, but because the regulator has refused to offer clarity one way or the other. This uncertainty is dangerous; unlicensed money transmission is potentially a serious state and federal felony.
So where does Coin Center stand on all this? Our first best outcome would be for California’s DBO to follow Texas: officially explain in written public guidance that it interprets the term “monetary value” to exclude Bitcoin and other cryptocurrencies. We would support that completely. Unfortunately such guidance does not seem forthcoming. To the extent that the legislature wants to end the uncertainty caused by DBO’s inaction, and wants to do this by creating a new licensing regime (California does not have a history of deregulating), then the ULC model act is the best possible licensing law we could hope for. Again, take a look at the accompanying chart and see how the ULC model act compares to the New York BitLicense.
Given all that, is Coin Center advocating for the passage of AB 1489? No. Again, our preferred outcome would be Texas-like guidance. Is Coin Center therefore lobbying for the bill’s defeat? No, because if Texas-like guidance is not an option (and it likely isn’t in California), then adopting the ULC Model Act is the best way available to end the uncertainty in the state. Ours is a nuanced position that is neither for or against. Nuance is good. The world is not black and white and policy is always about trade offs.