Recently, Governor Gavin Newsom approved a new cryptocurrency bill that signifies the state's intention to further regulate the rapidly growing crypto industry. Here’s a deep dive into the new crypto regulations and what they mean for the industry:
The Digital Financial Assets Law
Governor Gavin Newsom has put his stamp of approval on the bill titled the Digital Financial Assets Law. This regulation aims to tighten the leash on businesses conducting cryptocurrency operations, ensuring a safer and more transparent environment for users.
Key takeaways from this law include:
Mandatory Licensing: Both individuals and firms involved in digital asset business activities will be required to obtain a license from the Department of Financial Protection and Innovation (DFPI).
Stringent Audit Requirements: The DFPI now has the authority to enforce rigorous audit demands on crypto entities, ensuring they uphold strict recording standards.
Detailed Record Maintenance: Companies will need to maintain records for a minimum of five years after the date of any activity. This should encompass all financial details, including assets, liabilities, income, and expenses.
Non-compliance will lead to stringent enforcement actions, signaling the state's seriousness in regulating the crypto industry.
Interestingly, this isn’t California’s first attempt to introduce crypto regulations. In 2022, Newsom declined to sign a similar bill, opting to wait for federal guidelines. His change of heart may be attributed to:
Growing Influence of Crypto: With California being home to nearly a quarter of blockchain and digital asset companies in North America, the need for stringent regulation has never been more apparent.
Previous Setbacks: Events like the collapse of the FTX crypto exchange highlighted the urgent requirement for comprehensive rules.
Federal Exploration: As the federal government actively considers various regulatory measures, such as the potential application of the Electronic Fund Transfer Act to cryptocurrencies, states like California might be motivated to set precedents.
Broader Implications for the Crypto Market
The new regulations will undeniably impact the crypto industry within California. The addition of requirements, especially concerning stablecoins, signifies the state's acknowledgment of the diverse crypto landscape.
While it remains to be seen how these regulations will be received, they might set the stage for similar laws in other states or even at the federal level. The crypto industry has long sought clarity, and California's approach might offer a blueprint for others to follow.
Regulation is simply the raising of the barrier to entry. It means making it harder for the middle class to compete with the upper class therefore less opportunity for the lower class. Regulation is a direct and indirect attack on the lower class.
The good news is, as there is more regulation there will be more scarcity which could mean increased value of crypto assets (unfortunately among the few). However DeFi will grow stronger and incentivize people to decrease their involvement in TradFi