© Contributed by the LA Times After vetoing a bill to regulate the crypto industry statewide, Governor Gavin Newsom said, "Blockchain in particular is something that I'm seeing more prevalent in our lives." (Photo) By Los Angeles Times Allen (Photo by J. Chapin/Los Angeles Times)Governor Gavin Newsom is a promoter and proponent of blockchain technology and cryptocurrency within the Democratic Party. But Newsom's recent efforts to reflect the sector's growth and new statewide regulations have been hampered by poor timing.
In May, Newsom issued an executive order aimed at promoting blockchain research, encouraging innovation and exploring how the technology could be used in government. A few days later, two popular cryptocurrencies crashed and the cryptocurrency markets went into a tailspin. Less than two months later, Celsius Network, one of the largest cryptocurrency exchanges, filed for bankruptcy, affecting more than 48,000 Californians with $650 million in assets.
After the centennial fiasco, a new attempt at state regulation of the industry was pushed through both houses of the California legislature and passed on August 30 by only six votes.
Three weeks later, Newsom vetoed the bill, saying it was "too early" for the state to move forward without considering the "looming federal settlement."
Newsom's bad moments soon returned. After months of veto, the cryptocurrency exchange FTX filed for bankruptcy, former FTX CEO Sam Bankman-Fried (a supporter of Newsom's order) was indicted on several federal criminal charges, and the price of the cryptocurrency dropped Despite Newsom's predictions, federal legislation governing the fledgling but volatile crypto industry remains in limbo.
Newsom did not regret the veto. In an interview, he said his executive order is not going "the way many in the industry want it to" and noted that California has taken a different approach than New York, which has strict crypto regulations. - The currency, as well as Wyoming, which has a very permissive rule called "Delaware for digital assets."
"I think the view from California has been moderate," Newsom said. "We tried ... to look at it through the lens, in the long term, of how radically it could change attitudes, especially in the financial sector. Blockchain in particular is something that I see becoming more pervasive in our lives .
In Sacramento, however, lawmakers and supporters of California's latest attempt to regulate blockchain and cryptocurrency aren't convinced the state has struck the right balance and are preparing to try again.
"During the last legislative session, industry representatives expressed concern about the cost of complying with fair and reasonable rules," said Rep. Tim Grayson, chairman of the Banking and Finance Committee and author of Bill AB 2269, which Newsom rejected. As we now know, the cost of inaction is great: real people suffer.
"I appreciate the industry stakeholders who have already reached out to me in good faith to establish policies that promote responsible innovation and protect consumers," Grayson added.
Industry stakeholders are always eager to get involved. Block Inc., PayPal and stripe payment systems; financial giants Fidelity and JPMorgan Chase; open, non-volatile token market; crypto financial services company Blockchain.com; Coinbase Crypto Exchange; Software giant Salesforce. Business groups including Electronic Transactions Assn. And the TechNet and Blockchain Advocacy Coalition raised more than $400,000 between April 1 and the end of August to lobby the assembly, the Senate, the executive branch and Newsmy itself.
All of these organizations pushed for a bill to regulate cryptocurrencies, which Newsom rejected. In a letter against Bill Grayson, sponsor of the bill, the Blockchain Defense Alliance writes that the bill needs "greater clarity and flexibility" to prevent "the potential strangulation of a nascent but promising industry." The coalition also objected to "vague definitions" of terms for digital assets and "cumbersome registration requirements."
Any new legislative effort to regulate the industry is likely to be another boon for top lobbyists in Sacramento, said Robert Harrell, executive director of the Consumers Union of California, a nonprofit advocacy group that has been a strong supporter of Newsom. s bill he vetoed, warned.
"[Big tech companies] have almost unlimited resources, and they're constantly tending to win over elected officials at all levels," Herrell said. "It gives them access that consumers don't have. Celsius [and FTX] lost that access."
Salesforce pressed Newsom directly on NFTs and blockchain technology, according to the company's lobbying statement. Salesforce offered Newsom a $130 dinner on May 18, lobbyists report. The report did not say whether lobbying took place at the dinner, but a Salesforce spokesperson said it did. Salesforce CEO Marc Benioff is a close friend of Newsom and godfather to the governor's oldest son.
Newsom sees NFTs and blockchain as separate from cryptocurrencies and does not recall the cryptocurrencies discussed at the Salesforce dinner.
"I didn't even know they were showing interest in this space, especially Salesforce, so that's news to me," Newsom said. "I know a lot of people, including Marc Benioff from Salesforce. I was just with Marc and we didn't have a conversation about cryptocurrency."
The bill, which Newsom opposed, would have required cryptocurrency exchanges to disclose their holdings and financial stability, temporarily banned a class of cryptocurrency called fiat currencies or "algorithmic" stablecoins, and required companies that trade in cryptoassets to float or trade with client funds to obtain. licenses. May have been the California Treasury Department. Financial protection and innovation until January 1, 2025
In his veto statement, Newsom said his administration has "conducted extensive research and communications to gather information on how to balance benefits and risks for consumers."
But Newsom and his top aides have not met with the California Consumers Union, Harrell said.
According to him, Harrell is proud that he was able to build a broad coalition of "strange peers" to support his cryptocurrency regulation bill. "We've worked hard to build this coalition," Herrell said. "Events of the past few months have confirmed what many of us already know is that this is the Wild West crypto market. It lacks basic rules of the road and basic consumer protections."
Newsom's veto statement indicates that he is counting on the federal government to clarify these rules of the road. But with Bankman-Fried — a major force for regulatory change in Washington — facing federal charges and Republicans poised to take control of the House, congressional action to regulate cryptocurrencies seems unlikely in the near future .
In retrospect, Newsom's veto of California's crypto regulation looks "pretty bad," Rep. Brad Sherman (D-Northridge), one of the leading anti-crypto voices in Congress
"We generally don't like people getting ripped off and the SEC being sluggish," Sherman, who wants to ban cryptocurrencies, told the Times. Congress is a backhanded mess and state legislatures can step in and at least make sure that when you invest in something really bad, you don't get ripped off. If you want to keep other people's money, you need to control, monitor and communicate.
Newsom seems to have changed a lot since the FTX crisis. Last month, his office released an executive report that examined the impact of his cryptocurrency. The report states that individuals who have historically benefited from traditional banking services have been "victims of hacks, scams, fraud and product failures". He also identified the top three risks associated with the cryptocurrency market: fraud, misinformation, privacy and security.
The California legislature is moving forward. Grayson has already introduced a new bill, AB 39, that would require all money transfer companies — a definition that would include crypto companies — to register with government financial regulators.
State Sen. Monique Lemon (D-Goleta), chairwoman of the California Senate Banking and Financial Institutions Committee, appears to be prepared to veto a new version of the bill Newsom or move forward.
"If all cryptocurrency companies follow the consumer protection provisions of AB 2269, I'm sure California consumers and retail investors will be at less risk in this situation," Lemon told The Times. "I look forward to working with President Grayson as he leads legislative efforts that put California consumers first in the next legislative session."
Times staff Taryn Luna contributed to this report.
This story originally appeared in the Los Angeles Times.