By Guillermo C. Artiles and Alexandra Viqueira
More than five years after passing what should have been landmark digital currency legislation, New York is already beginning the onerous regulatory reform process of the BitLicense. In 2015, cryptocurrency was still a fledgling industry, and the New York Legislature’s clumsy attempt at managing its growth succeeded only in pushing talented and entrepreneurial businesses across the Hudson River. Digital currency continues to expand, but elsewhere – and now New Jersey has an opportunity to demonstrate what nurturing a thriving new sector looks like.
In a first but major step towards welcoming those cryptocurrency companies fleeing New York’s financial hub, the Assembly Science, Innovation and Technology Committee, chaired by Assemblyman Andrew Zwicker, advanced Assembly Bill 2891. This bill, the “Digital Asset and Blockchain Technology Act,” sponsored by Assembly members Lopez, Zwicker, Danielsen and Vainieri Huttle would be the first of its kind to regulate digital currency in New Jersey. It’s an opportunity to establish consumer protections for an exciting and burgeoning industry, in our State’s tradition of cultivating innovative and daring technologies.
Because – much like the powerful legacies of Thomas Edison and Bell Labs – digital currency is the future of currency. In 2019, J.P. Morgan became the first U.S. bank to create and test its own digital currency. Fidelity Investments continues to expand its own dedicated division, Fidelity Digital Assets—even filing to launch its first Bitcoin fund this past summer. Early next year, PayPal is expanding digital currency support to participating merchants and Venmo. Traditional asset managers and banks see the wind blowing towards cryptocurrency and are themselves furthering the enterprise, in many ways alongside the new technology’s entrepreneurs.
Even so, New York’s BitLicense proved hostile to promising industry leaders and startups – many of whom found friendlier conditions in New Jersey. Today, the Blockchain Association of New Jersey (BANJ) is among those anticipating balanced and productive regulatory framework. BANJ represents blockchain exchanges, asset managers, development companies, and other stakeholders in a diverse and far-reaching industry. The success of A-2891 is an opportunity to seize on New York’s loss and foster a competitive digital asset market in New Jersey.
A-2891 provides digital currency businesses operating in New Jersey a licensing process through the Department of Banking and Insurance – companies disclose legal names, business monikers and relevant out-of-state license penalties. Digital asset businesses may also be licensed out-of-state, provided there exists a reciprocity agreement with New Jersey. Most important, is the opportunity available to growing blockchain innovators and consumers.
New York’s BitLicense hampers leading, but often smaller digital currency businesses without the disproportionate capacity of legacy financial institutions. This stifles competition and hinders the unique financial services of digital and decentralized currency. A 2015 New Jersey Financial Service Center’s report estimates almost a fifth of New Jerseyans as either underbanked or unbanked – and this was before the fiscal crisis brought on by COVID-19.
Blockchain enterprises are encumbered by none of the same institutional traditions which deem so many in our State to be financial risks, however unjustified they may be in their assessments of our underbanked community. In fact, while testifying in support of A-2891, crypto executive Evin McMullin commented, “The blockchain industry offers an inclusive, accessible path for young people, women and people of color. This path also leads to financial inclusion, economic empowerment and generational wealth for communities who have traditionally been overlooked by the financial system.”
The bill acknowledges virtual currency’s increasing popularity, and its relative novelty among consumers. In support of New Jersey’s future in the blockchain industry, lawmakers have pointed out the early volatility of cryptocurrency and the financial risks of uninformed consumers. A-2891’s licensing process provides consumer protections through terms and conditions and clear disclosures upon creation of a digital currency account, and other commitments promoting cryptocurrency education and informed use. The Chief Operating Officer of CoinFlip – the largest Bitcoin ATM operator in the U.S. – Ben Weiss has offered, “A-2891 is likely to increase innovation by protecting consumers, legitimizing the blockchain industry, increasing transparency, and shutting out bad actors.” Industry leaders in New Jersey want to be fairly regulated.
Fostering a market more New Jerseyans feel confident using is of particular importance during the abrupt new norms of the startling COVID-19 pandemic. Increased public health and safety standards have accelerated the use of no-touch payment options, digital currency included. And beyond in-person transactions – people are feeling safer completing purchases from their homes. Cryptocurrency’s continued expansion coincides with new technological needs and the lasting effects of the ongoing State of Emergency.
The Digital Asset and Blockchain Technology Act will head next to the Assembly for a full vote, again challenging New Jersey to pass inaugural digital currency regulations that support and welcome this new technology, rather than accidentally excluding those propelling the sector. There is an unquestionable wealth of opportunity – in new jobs, State revenues, accessibility – presented by the blockchain industry. Watching New Jersey’s legislators get this first step right is certainly a historical moment, and one worth celebrating.
A partner in the Newark office of McCarter & English, LLP, Guillermo C. Artiles focuses his practice on government affairs and complex business litigation. He advocates for clients across multiple industries, including telecommunications, technology, healthcare, education, energy, advertising, and fintech. He can be reached at gartiles@mccarter.com.
Alexandra Viqueira is McCarter’s Government Affairs & Public Interest Liaison. She is not licensed to practice law.