By Keli’i Akina
Will Hawaii be able to benefit from the cryptocurrency boom? Or will excessive regulation continue to get in the way? It all depends on what happens in the upcoming legislative session.
Sometimes called digital currency, cryptocurrency continues to grow in value as it becomes more widely accepted and more investors buy into the market.
Bitcoin is probably the most well-known cryptocurrency, but there are thousands of others, including Etherium, Dogecoin and Monero. The market overall is valued at $2.2 trillion, and every day seems to bring news about a company, country, state or municipality that is accepting or investing in cryptocurrency.
Unfortunately, Hawaii residents have been largely left out of the cryptocurrency market, thanks to a regulation that makes it nearly impossible for them to operate here.
Cryptocurrency companies are subject to Hawaii’s money-transmitter law, which requires that they have cash reserves equal to the value of the virtual assets they hold. Thus, a company that has $100 million in Bitcoin and Ethereum also needs to have an additional $100 million in cash.
It is easy to see how this could be too great a financial burden. That’s why the top two cryptocurrency exchanges — Coinbase and Binance — do not operate in Hawaii. Nor do other well-established companies like Robin Hood Crypto or PayPal’s Cryptocurrency Hub.
In 2019, the state launched a “Digital Currency Innovation Lab,” essentially a regulatory “sandbox” that permits certain digital currency companies to operate in Hawaii without having to meet the cash-reserve requirement under the money-transmitter law.
Unfortunately, the sandbox expires at the end of 2022. Without action from the Legislature to reform or remove the cash-reserve regulation, Hawaii’s involvement in the sphere of cryptocurrency could end before it even has the opportunity to grow.
I spoke about this quandary with my guest on this week’s “Hawaii Together” episode, Alexandra Gaiser, who is director of regulatory affairs for River Financial, one of the 15 companies participating in the state’s innovation lab.
Gaiser helped demystify the concept of cryptocurrency for me, calling it, “the latest evolution … of a practice as old as man, and that is bartering — exchanging one thing for another and using some symbolic token to represent what you’re exchanging.”
While the concept of digital currency may seem foreign and complex, Gaiser pointed out that we are already very comfortable with different forms of digital transactions.
“Even now,” she said, “I pay for some things with credit card points. I book certain flights with airline miles. Anytime I give or receive a gift card, it’s denominated in dollars, but it’s not quite dollars. It’s a little bit more [like] store credit. We all are actually pretty sophisticated consumers of different types of currency, not all of which are related to the U.S. government.”
Gaiser said there is a place for government regulation of cryptocurrency, such as in the prevention of fraud, but also that it is possible to strike a balance that does not put an unworkable burden on cryptocurrency companies.
She said it would be “tragic” for Hawaii’s economic future if the Legislature doesn’t act quickly and continues to overregulate cryptocurrency companies in the state.
“To be in 2022, in the world of Bitcoin and cryptocurrency, is like being in 1996, in the world of the internet,” she said. “There’s so much that we haven’t done yet, we haven’t built yet. I would hate to see Hawaii miss out on the innovation to really improve life and to be creative, to be innovative, to make new products, [and] then to also miss out on the wealth that comes with that.”
Since the state’s cryptocurrency sandbox took effect in March 2019, 61,000 Hawaii customers have been able to participate in the cryptocurrency market. In that limited window, they made cryptocurrency transactions worth $611 million. Just imagine what it could mean to our economy if Hawaii residents had the freedom to participate fully in the worldwide digital currency market.
I hope our state policymakers can see this potential and remove the barriers to cryptocurrency that are holding us back.
Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.