Governor Gavin Newsom is one of the most prominent representatives of the Democratic Party promoter and defender of blockchain and crypto technology. But Newsom’s recent efforts to boost the sector and stave off new state-level regulations have suffered from ill-timed decisions.
In May, Newsom issued an executive order aimed at boosting blockchain research, driving innovation and exploring how the technology could be used in government. Days later two celebrities Cryptocurrencies imploded and the crypto markets collapsed. Less than two months later the Celsius networkone of the largest cryptocurrency exchanges, filed for bankruptcy, which concerns more than 48,000 Californians with assets valued at $650 million.
In the wake of the Celsius debacle, a new state-level attempt to regulate the industry shot through both chambers of the California Legislature and passed on Aug. 30 by just six votes against.
Three weeks later, Newsom vetoed that bill, claim that it was “premature” for the state to move forward without considering “upcoming federal regulations.”
Newsom’s unfortunate timing soon struck again. In the months since his veto, crypto exchange FTX has filed for bankruptcy, former FTX CEO Sam Bankman Fried (a fan of the Newsom executive order). several federal crimesand have crypto prices fell further. Despite Newsom’s expectations, there are federal laws to regulate the burgeoning but volatile crypto industry remains in abeyance.
Newsom has not regretted the veto. In an interview, he said that his executive order “didn’t go as far as many people in the industry wanted,” noting that California took a different approach than New York, which had particularly strict crypto regulation, like and Wyoming, which has such a lax regime it’s known as “theDelaware of Digital Assets.”
“I think California’s approach was a sober approach,” Newsom said. “We’ve been trying to … look at this through the prism over the long term, how this will fundamentally change relationships, particularly in the financial sector. Blockchain in particular is something I see becoming more prevalent in our lives.”
In Sacramento, however, lawmakers and advocates who pushed California’s recent attempt to regulate blockchain and crypto are unconvinced that the state has struck the right balance and are preparing to try again.
“During the last legislature, industry has raised concerns about the cost of complying with fair and reasonable rules,” said Assembly Member Tim Grayson, Chair of the Banking and Finance Committee and author of AB2269, Newsom vetoed the bill. “As we now know, the cost of doing nothing is much higher: real people get hurt.
“I appreciate the industry stakeholders who have already reached out to me in good faith to work toward policies that encourage responsible innovation while protecting consumers,” added Grayson.
Industry stakeholders have previously been eager to comment. payment processors Block Inc., Paypal and Stripe; financial giants Fidelity and JP Morgan Chase; non-fungible token marketplace OpenSea; crypto financial services company Blockchain.com; crypto exchange Coinbase; software giant Salesforce; and trade groups, including the Electronic Transactions Assn., TechNet, and the Blockchain Advocacy Coalition, collectively spent more than $400,000 lobbying the Assembly, Senate, Executive Branch, and Newsom itself between April 1 and late August from California lobbying disclosures.
All of these organizations that campaigned for the crypto regulation bill were vetoed by Newsom. In a letter of objection to Grayson, the drafter of the bill, the Blockchain Advocacy Coalition wrote that the bill needed “greater clarity and flexibility” to avoid potentially “stifling an emerging but promising industry.” The coalition also rejected “unclear definitions” of terms for digital assets and “onerous registration requirements.” Others in the cryptocurrency industry viewed the bill as a job killer that would drive innovation out of California and undermine Newsoms supreme command.
Any new legislative effort to regulate the industry will likely come with another windfall for Sacramento’s top lobbyists, warned Robert Herrell, executive director of the Consumer Federation of California, a nonprofit advocacy group that was a key supporter of the bill’s anti-Newsom bill vetoed.
“[Big Tech companies] have almost unlimited resources and are constantly courting the favor of elected officials at all levels,” Herrell said. “It gives them access that consumers don’t have. None of the people holding the bag after Celsius [and FTX] has gone down to having that kind of access.”
Salesforce pitched Newsom directly on NFTs and blockchain technology, the company said Company Lobbying Disclosure. On May 18, Salesforce treated Newsom to a $130 dinner, the lobbying report shows. The report doesn’t say if the lobbying in question took place at the dinner, but a Salesforce spokesman said it didn’t. Marc Benioff, the billionaire CEO of Salesforce, is a close friend of Newsom and the godfather of the governor’s eldest son.
Newsom considers NFTs and blockchains separately from cryptocurrencies and doesn’t recall crypto being discussed at the Salesforce dinner, he told The Times.
“I didn’t even know they were interested in this space, especially Salesforce, so this is new to me,” Newsom said. “I know so many people from Salesforce including Marc Benioff. I was dating Marc right now and we didn’t have a single conversation about crypto.”
The bill, vetoed by Newsom, would have required cryptocurrency exchanges to disclose their assets and financial health and temporarily banned a category of cryptocurrencies called “unbacked.” “Algo” stablecoins and urged companies that trade crypto assets or manage customer funds to obtain a license from the California Department of Financial Protection and Innovation by January 1, 2025.
Newsom said in his veto statement that his government has “conducted extensive research and outreach to gather input on approaches that weigh the benefits and risks to consumers.”
But Newsom and his top aides didn’t meet with the Consumer Federation of California, Herrell said.
Herrell is proud that he managed to build a broad coalition of “odd bedfellows” to support the crypto regulation bill, he said. “We worked our ass off to build this coalition,” Herrell said. “The events of the last few months have just confirmed what many of us already knew, which is that this is a crypto marketplace in the Wild West. Basic traffic rules and basic consumer protection are missing.”
Newsom’s veto statement indicated that he was counting on federal action to establish these rules of the road. But with Bankman-Fried – the Main force pushing for regulatory changes in Washington – With federal and Republican impeachments taking control of the House of Representatives, action by Congress to regulate crypto seems unlikely in the near future.
In hindsight, Newsom’s veto on California’s crypto regulation “looks pretty bad,” said Rep. Brad Sherman (D-Northridge), one of the leading anti-crypto voices in Congress.
“In general, we don’t like when people get scammed, and the Securities and Exchange Commission is slow to move,” Sherman, who wants crypto being banned, said the Times. “Congress is an immobilized mess and state legislatures can step in and at least make sure you don’t get scammed by investing in something really bad. If you want to hold other people’s money, you need to be regulated, vetted and locked in.”
Newsom seems to have turned around a bit in the wake of the FTX crisis. Last month his office released one executive report dealing with the impact of its crypto executive order. The report found that people historically underserved by the traditional banking industry “have fallen prey to hacks, scams, scams and product collapses.” It also named three main risks associated with the crypto marketplace: fraud, misinformation, and privacy and security.
The California Legislature is making progress. Grayson has already tabled a new bill FROM 39which would force all entities involved in money transfers – a definition that would include crypto companies – to register with state financial regulators.
State Senator Monique Limón (D-Goleta), chair of the California Senate Committee on Banks and Financial Institutions, appears poised to reconsider — or go further — a new version of the bill vetoed by Newsom.
“Certainly if all crypto companies were compliant with AB 2269 consumer protections, California consumers and retail investors would be less at risk in this space,” Limón told The Times. “I look forward to working with Chairman Grayson as he leads the legislative effort that will prioritize California consumers in the upcoming legislative session.”
Times contributor Taryn Luna contributed to this report.
https://www.latimes.com/politics/story/2023-01-05/gavin-newsom-crypto-regulation-veto Gavin Newsom’s awkward crypto timing