In recent years, cryptocurrency has gained significant interest and traction via the passage of numerous bills in one of the country’s least populated states – Wyoming. While federal regulatory authorities have struggled to clearly regulate and classify crypto markets, Wyoming has passed over a dozen bills aimed to redefine and reshape the state’s blockchain industry through various measures since 2018.1 Through this series of legislation, Wyoming has rapidly gained attention for its ability to support digital asset businesses.
Waves of Change
A total of thirteen blockchain and crypto-related bills have been passed over two years to create the state’s comprehensive legal framework. The first significant wave of legislation signed into law by Wyoming Gov. Matt Mead (R) last spring resulted in the classification of digital utility tokens as an asset class, lessened limited liability corporation restrictions for blockchain businesses, and state property tax exemptions.2
A second wave of legislation in February of 2019 brought further clarity to Wyoming’s rapidly evolving cryptocurrency market. Over this spring, the state’s legislature reclassified digital assets as property under the Wyoming Uniform Commercial Code (SF0125), approved the issuance of tokens for securities with House Bill 0185 (“HB0185”), and established special-purpose depository institutions (“SPDIs”) for businesses that have been unable to secure traditional banking access (HB0074), such as those within blockchain industries.3
“I think right now Wyoming is the standard,” Wyoming Representative Tyler Lindholm (R) told CoinDesk earlier this year. “We’ve got other states running in one form or another our legislation…so they’re trying to play catch-up.”4
Other states have passed bills that focus on similar challenges for digital asset companies recently, but so far, there has not been an equivalent to Wyoming’s legislative push. In March, Colorado Gov. Jared Polis signed the Colorado Digital Token Act (“SB19-023″) to limit securities registration restrictions and address digital token securities licensing requirements. Arizona and New Mexico have also been rumored to join Wyoming and Colorado in advocating for federal regulatory change.5
Creation of “Blockchain Banks”
Of the legislation that has been passed, HB0074’s creation of SPDI’s has made a significant impression on the cryptocurrency industry, as it addresses companies’ critical lack of banking services. After meeting the statutory $5 million minimum capital requirement to apply, firms would be granted master accounts with the Federal Reserve and have the ability to clear internal wires.6 With an increased measure of financial self-sufficiency, some hope that it will ease pressure on the few crypto-friendly banks that currently service the market.
“Some companies might choose to partner with unaffiliated SPDIs and others might choose to create their own affiliated SPDI,” Caitlin Long, Wyoming Blockchain Task Force appointee and Wall Street expert, explained to CoinDesk. “The significance is that crypto companies won’t need to rely anymore on the few traditional banks that have been willing to bank the industry.”7
Since HB0074, Wyoming advocates have worked to produce concrete policies for the SPDI charter. On November 11, state officials released a set of opt-in custody rules to shed light on said institutions at New York’s Fordham Law Blockchain Regulatory Symposium. According to a series of tweets by Long, the new rules included guidelines for a multitude of operations – such as airdrops, customer notice requirements, forks, and staking.
As more on Wyoming’s transformative policies has been released, some stakeholders seek to apply the state’s openness to digital asset companies to overcome some of the current obstacles faced by the industry in other states.
In New York, for example, licensing for cryptocurrency exchanges has gained a reputation for being an exhaustive and expensive endeavor as companies must obtain a state issued BitLicense. Created by the New York Department of Financial Services (“NYDFS”) in mid-2014, BitLicenses are acquired through a thirty-page application and a $5,000 filing fee, yet some claim that compiling all of the required materials amounts to over $100,000.8 In addition to costly application procedures, interested crypto and/or blockchain businesses are required to appoint a qualified Chief Information Security officer to implement written compliance and anti-fraud policies, along with disaster recovery procedures.9 Since the license’s creation, New York has only issued eighteen BitLicenses,10 a staggeringly low number considering the state’s impact and position as the country’s financial hub.
That said, some point to Wyoming’s established foundation as a way for companies to avoid some of the current restrictions that typically come with operating in New York. At CoinDesk’s Invest: NYC event last week, supporters appeared certain that the current legal concepts that excuse banks from having state money transmitter licenses would apply. “We are fairly confident that the Wyoming SPDI will be able to operate in New York without a BitLicense,” general counsel of the Wyoming Division of Banking, Chris Land stated.11
Wyoming’s Future in Crypto
While Wyoming appears poised to provide new avenues and opportunities for digital asset businesses, it is worth noting that the proposed systems have not been fully enacted. Looking to the future and referencing previous experience as a former Morgan Stanley executive, Long laid out potential next steps for state businesses looking to expand: “The Wyoming SPDI would need to apply to NYDFS to open a branch in New York and NYDFS would need to approve the application, but there’s a lot of favorable case law precedent.”
“So if NYDFS denies the application,” she suggested, “I think it would go to litigation and the Wyoming bank would likely prevail.”12
Beyond the anticipated impact of the HB0074, in two years, Wyoming has set itself up to become one of the country’s leading cryptocurrency-friendly states. Noting Wyoming’s unique position, Long previously highlighted the state’s pro-crypto stance; “Wyoming is already the ‘Delaware of digital asset law,’ a reference to Delaware’s lead in corporate law.”13 Colorado, however, may be working towards comparable measures as last month members of Colorado’s Blockchain Council met to discuss the formation of special-purpose banking institutions.14
Depending on the state’s handling and implementation of the flood of crypto-related legislation that has been passed since 2018, Wyoming may hold significant promise for crypto companies.
- Long, Caitlin. “What Do Wyoming’s 13 New Blockchain Laws Mean?” Forbes. Forbes Media LLC, March 4, 2019. https://www.forbes.com/sites/caitlinlong/2019/03/04/what-do-wyomings-new-blockchain-laws-mean/#17d6f24b5fde
- Bain, Benjamin. “Wyoming Aims to Be America’s Cryptocurrency Capital.” Bloomberg Businessweek. Bloomberg L.P., May 15, 2018. https://www.bloomberg.com/news/articles/2018-05-15/wyoming-aims-to-be-america-s-cryptocurrency-capital
- Khatri, Yogita, and Christine Kim. “Wyoming Lawmakers Pass Three Bills in Boost for State’s Crypto Industry.” CoinDesk. CoinDesk Inc, February 20, 2019. https://www.coindesk.com/wyoming-lawmakers-pass-three-bills-in-boost-for-states-crypto-industry
- Khatri, Yogita, and Christine Kim. “Wyoming Lawmakers Pass Three Bills in Boost for State’s Crypto Industry.”
- Kozlov, Herbert F., and Arthur C. Surratt. “Wyoming and Colorado Emerging as Leading Digital Asset Venues in the U.S.” FinTech Update. Reed Smith LLP., October 28, 2019. https://www.fintechupdate.com/2019/10/wyoming-and-colorado-emerging-as-leading-digital-asset-venues-in-the-u-s/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
- Allison, Ian. “Wyoming’s New Crypto Banking Law Could Defang New York’s BitLicense.” CoinDesk. CoinDesk Inc, November 17, 2019. https://www.coindesk.com/wyomings-new-crypto-banking-law-could-defang-new-yorks-bitlicense
- Allison, Ian. “Wyoming’s New Crypto Banking Law Could Defang New York’s BitLicense.”
- “Everything You Need to Know About NYSDF BitLicense.” CipherTrace. CipherTrace, June 25, 2019. https://ciphertrace.com/new-york-bitlicense/
- “Everything You Need to Know About NYSDF BitLicense.”
- Allison, Ian. “Wyoming’s New Crypto Banking Law Could Defang New York’s BitLicense.”
- Long, Caitlin. “What Do Wyoming’s 13 New Blockchain Laws Mean?”
- Allison, Ian. “Colorado Could Be Next in the Race to Bank Crypto (and Cannabis).” CoinDesk. CoinDesk Inc, October 24, 2019. https://www.coindesk.com/colorado-could-be-next-in-the-race-to-bank-crypto-and-cannabis