New York’s cryptocurrency regulation has been “an absolute failure,” but state lawmakers have responded with a task force that will take nearly two years to even issue a report.
The Digital Currency Study Bill, A8783B/S901 was signed in to law by NY Gov. Andrew Cuomo on Dec. 21. The task force will include various stakeholders including technologists, consumers, investors, business representatives and academics. A report from the task force is due Dec. 15, 2020, and will cover digital/cryptocurrency and blockchain technology.
“New York leads the country in finance. We will also lead in proper fintech regulation,” said Clyde Vanel, NYS Assemblyman, Chair of Subcommittee on Internet and New Technologies in a press release. “The task force of experts will help us strike the balance between having a robust blockchain industry and cryptocurrency economic environment while at the same time protecting New York investors and consumers.”
Despite being a world financial leader, New York regulates cryptocurrency perhaps more heavily than any other U.S. state. In 2015, New York began requiring businesses that engage in cryptocurrency activities to obtain a “BitLicense.”
The BitLicense regime has come under considerable criticism. ““Let’s call the BitLicense what it is—an absolute failure” is how Erik Voorhees, the CEO of cryptocurrency exchange ShapeShift, described the New York regulatory regime. Voohees’ business, along with others, pulled out of New York in response to the regulation.
Only about a dozen businesses have obtained a BitLicense, and some have blamed the regulation for stifling blockchain-related innovation. “Applying for the BitLicense is an expensive and difficult process, as many have noted,” George Frost, Chief Legal Officer, of Bitstamp was quoted as saying by BTC Manager. “Some other firms have chosen to abandon the New York market entirely, rather than comply. We do not fault them for doing so.”
The New York situation highlights a challenge facing lawmakers and regulators: New technologies can be used to harm others; over-regulation can crush innovation; and the speed with which Fourth Industrial Revolution technologies, including blockchain, are developing makes traditional regulatory processes (such as a task force that has nearly two years to release a report) inadequate.