Governor Gavin Newsom vetoed a bill that would have required Californian businesses that facilitate crypto transactions to register as money transactions. The bill would also have put strict limits on stablecoins that weren’t backed by banks or otherwise approved by the state Department of Financial Protection and Innovation.
Newsom cited Executive Order N-9-22, which mandated the creation of a “transparent and consistent business environment” for fintech, digital asset and blockchain companies. He says his administration is currently studying both the benefits and the risks associated with digital assets. According to Newson, his ultimate goal is to “incorporate California values such as equity, inclusivity, and environmental protection.”
Newsom said the bill was premature. The veto sends it back to the Californian Assembly, which can override the veto with a 2/3 vote of approval in both chambers. Attorney Jake Chervinsky said that the veto “takes guts” in the wake of the fact that the California assembly passed it 71-0.
However, California’s Assembly hasn’t overridden a veto for more than 40 years, even for legislation that originally had overwhelming support among state representatives. The last time the Californian state legislature overrode vetoes, it was during a period when it was butting heads with Governor Jerry Brown in 1980.
Newsom seems less interested in conflict with the legislature: “I am committed to working collaboratively with the Legislature to achieve the appropriate regulatory clarity once federal regulations come into sharper focus for digital financial assets, while ensuring California remains a competitive place for companies to invest and innovate.”
Federal-level regulators have been accused of lack of clarity and sending conflicting messages about crypto-related regulation. One of the SEC’s own commissioners, Hester Pierce, blasted the SEC for lack of clarity: Does Ethereum count as a security? (Now that the Merge has successfully switched Ethereum from a Proof-of-Work algorithm to Proof-of-Stake, the SEC suddenly seems very interested in Ethereum.) What gives with the SEC’s case against Ripple, which has been dragging on in court for almost two years now? (Both the SEC and Ripple seem to be sick of it, considering that both of them filed for summary judgments recently.)
California Assemblyman Tim Grayson criticized Newsom’s veto, saying that protection against bad actors in the crypto space is important. Grayson represents California’s 14th District.
However, the bill was criticized as having been hastily slapped together with little consideration for the people who actually use crypto. Bitcoin was originally based on the idea that anyone can download and use a wallet even if they can’t access the “mainstream” financial system or pass a KYC check.
The bill also had too many similarities to New York’s “BitLicense,” which requires New York businesses to obtain an additional license if they accept cryptocurrencies or facilitate cryptocurrency transactions. Several crypto businesses pulled out of New York and criticized it as overreach on the part of New York’s government. Crypto insiders like crypto VC firm 6th Man Ventures’ Mike Dudas called the BitLicense an “unmitigated disaster.”
As recently as September 25, 2022, Uphold said in a response to a customer query that obtaining a BitLicense has “taken quite some time” and trading crypto on its platform in New York was not an option because of that. This implies that regulatory bureaucracy is the usual major hassle for crypto businesses who are interested in looking legitimate by obtaining the relevant licenses.
Crypto insiders like Messari’s Ryan Selkis praised Newsom’s veto as the right thing to do but warned not to celebrate too early, as Newsom might consider a federal BitLicense if he becomes president. When asked directly whether he intended to run for president in 2024, Newsom said, “Not happening.” That doesn’t mean that Newsom won’t ever run for president. Just that this might be a bad time for him, considering that a 2021 recall election may still be fresh in Californians’ minds.
Ben Armstrong, AKA YouTube’s “BitBoy,” also warned of a possible federal BitLicense that Newson might support.
Newsom may have bought crypto businesses in California some breathing room by vetoing California’s version of the BitLicense. However, he has also cited the need for respect for federal regulation and California’s Assembly can still override the veto.