California Crypto Regulations Are Coming — Here's What to Expect

Rachel Curry - Author
By

May 5 2022, Published 1:58 p.m. ET

California, the home of Silicon Valley and the epicenter of big tech, is making headway with cryptocurrency regulation that favors blockchain developments. On May 4, Governor Gavin Newsom's administration launched the process to formally analyze how to incorporate cryptocurrency and related technologies into the California economy.

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California is the first U.S. state to make such strides. Here’s what to know about where crypto regulation is headed in the state.

California makes the move to propel crypto regulation.

On May 4, California became the first state to launch a formal examination of the cryptocurrency landscape, including related blockchain and Web3 technologies. This is a follow-up move to a previous one from Newsom. He signed an executive order in March stating that California would work in sync with federal digital currency regulation developments.

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Newsom’s senior adviser, Dee Dee, Myers said that crypto “is potentially an explosive creator of new companies and new jobs and new opportunities.” Myers added that the administration wants to get in on the ground floor to research crypto’s many speculative aspects.

Where is California headed with blockchain technology?

For Newsom, the formal exploration signals something bigger. His goal is, as his says, “to establish a comprehensive, thoughtful, and harmonized regulatory and business environment for crypto assets.”

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The U.S. government has discussed potentially launching a federal digital currency (despite the fact that decentralized assets operate under the premise of a decentralized leadership). Blockchain has other recognizable benefits, like storing large amounts of records and data on a publicly accessible ledger.

California is diving headfirst into crypto research and could produce information that will sway the state of regulation for crypto moving forward. According to Newsom’s press release, the state has seven priorities:

  1. Encourage transparency and consistency for “companies operating in blockchain”

  2. Collect feedback from a range of stakeholders to help build a regulatory approach

  3. Collect feedback from a range of stakeholders to determine possible “applications and ventures”

  4. Build a comprehensive regulatory framework through the public process

  5. Keep the regulations clear

  6. Use blockchain technology for public service and other needs

  7. Seek pathways to build a “research and workforce environment to power innovation”

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Experts are torn on the value of this research.

Hilary Allen, a financial regulation professor at American University, told reporters the move is “unlikely to produce the best outcomes for users of public services in California” despite helping grow the crypto market.

However, other states are already in discussions to take similar steps. Take Colorado, for example. Led by Democrat Governor Jared Polis, the state plans to launch its own cryptocurrency payments system for government services by the end of 2022. It would be the first of its kind in the U.S. and suggests a turning point in the race toward Web3.

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Is regulating cryptocurrency a paradox?

Given the crypto community’s unwavering commitment to decentralization, it may seem like regulating the environment would be paradoxical. However, regulation could improve emotions surrounding crypto investments, ultimately making cryptocurrencies less volatile.

On the flip side, it could stall innovation and lead to corporate or government control, which is exactly what many crypto investors are trying to avoid.

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