Despite a recent string of bad news for the crypto industry, Wyoming still wants its business
It’s been a tough year for cryptocurrency, a decentralized digital payment system that uses coding to verify transactions. The collapse of the massive exchange FTX made international headlines, and multiple other companies in the industry have recently failed. Signature Bank, which focused heavily on crypto, also failed, and the price of major coins crashed earlier this month.
For many of those in the crypto industry, the recent criticism and negative press attention is well-deserved.
“I'm not going to defend the activity of the criminals and scammers of this industry,” said Caitlin Long, a massive crypto supporter. “In fact, I've been very public, calling them out.”
Long is a Wall Street veteran and current CEO of Custodia Bank. She got fully involved with the technology a few years ago after she tried to donate to her alma mater, the University of Wyoming, with Bitcoin, the most popular cryptocurrency. She couldn’t because of the state’s laws, and then quickly discovered that there was an opportunity for Wyoming.
“We're not going to try to be on the coattails,” Long said. “We can actually lead in something here.”
Since then, Long has been instrumental in making Wyoming one of the most crypto-friendly states in the country. In the past few years, state lawmakers have passed a couple dozen laws trying to attract new crypto businesses to the windswept Cowboy State, including one this year that would authorize the state treasurer to issue its own digital currency.
Long said crypto has brought new people and jobs to Wyoming, which has struggled for years to diversify its economy beyond the energy industry.
“This is incredible. I'm seeing people coming from Denver, as opposed to our kids going to Denver the other way around,” she said.
Other Western states have also tried to stay ahead of the curve. Colorado was the first state to accept cryptocurrency to pay taxes, and one study ranked Nevada as the best state for crypto enthusiasts due to its friendly laws and high number of employees in the sector.
But some experts are questioning whether states should be trying to attract crypto.
“These crypto assets are not tied at all to the real economy,” said Chris Odinet, a law professor at the University of Iowa. “There are not merchants and commercial firms with consumer and commercial goods and supply chains behind them. So then I think you have to ask, what really is this for?”
At the center of this debate is the fight over whether crypto should be a part of banking. Wyoming is the first state to grant companies the ability to house digital currencies alongside fiat currencies under one roof. Fiat currencies are backed by a government, rather than a physical commodity like gold or silver. This is called a Special Purpose Depository Institution (SPDI). Importantly, those crypto assets are backed by cash reserves, but Odinet said they still might not be a good idea.
“Allowing banks themselves – pre-existing banks – to provide crypto investment or crypto custodial services is, in my view, a grave mistake,” he said. “I think if the 2008 financial crisis taught us anything, it's that keeping bank banking simple is really a pillar of avoiding financial harm and the contagion that can follow.”
Earlier this year, the Federal Reserve Board denied the charter application of Long’s Custodia Bank. They said the firm’s focus on crypto presented too many safety and soundness risks. Long was not a fan of that decision, and litigation about how the Fed handled Custodia’s application is pending.
“Bizarrely, the Biden administration decided to make an example for the rest of the crypto industry of Custodia,” Long said. “If they really wanted to solve the crypto problem, frankly, they ought to look at the laws that the Wyoming legislature in their wisdom passed.”
In the meantime, Congress is trying to regulate digital assets. Wyoming’s junior senator, Cynthia Lummis has been called the “Crypto Queen,” and recently introduced the Responsible Financial Innovation Act with Sen. Kirsten Gillibrand (D-N.Y).
“It will take our existing financial regulatory structure and just lay cryptocurrency assets on top of it,” Lummis said during a recent press call.
The U.S. Senate has yet to take action on the bill. For self-described skeptics like Odinet, there is a place for cryptocurrency and, especially, its underlying technology, blockchain – but in a more limited capacity.
“I understand and agree that banks will and should play a role in supporting crypto firms, but only like they support any other commercial enterprise,” Odinet said.
In a recent letter regarding Wyoming’s cryptocurrency laws, Gov. Mark Gordon exemplified both a nervousness and excitement he has regarding digital assets. Many state residents, including investors in Bitcoin, will likely be treading carefully in the next few months and weighing whether or not crypto is a valuable asset to their community.
“First movers are not always rewarded. They are, however, vital to progress,” he said.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, the O'Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, KUNM in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.
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