After years of laying groundwork, the future of Wyoming’s cryptocurrency banking industry now lies in the hands of federal regulators, officials with Wyoming U.S. Sen. Cynthia Lummis’ office told lawmakers Tuesday.
In a presentation to the Wyoming Legislature’s Select Blockchain Committee on Tuesday, Lummis policy advisers Tyler Lindholm and Chris Land warned lawmakers that Wyoming could lose its competitive advantage to other states in the race to lure cryptocurrency firms to the Cowboy State. Both men were key architects of Wyoming’s cryptocurrency laws.
The delay, they told lawmakers, was not due to any fault of the state legislature, but the slow pace of federal regulators and quasi-regulatory organizations like the American Bankers’ Association in developing rules to allow consumers to bank with the decentralized, digital currency. Most important among those steps: cryptocurrency bankers’ access to an ABA routing number, an essential tool for financial institutions to conduct transactions.
Such a delay, Sen. Chris Rothfuss (D-Laramie) said, could cause Wyoming to lose ground to other states that are quickly developing cryptocurrency regulations of their own, costing the state its competitive advantage as other states catch up. (The Illinois Legislature, they noted, is in the process of approving its own cryptocurrency banking regulations.)
“I don’t think there’s a great deal that can be done,” Land told lawmakers. “We are losing our first-mover advantage, and that keeps me up at night.”
A reluctant Fed
Lindholm, a former member of the Wyoming Legislature who was instrumental in passing most of Wyoming’s current cryptocurrency statutes, said it is “no surprise” cryptocurrency regulations face resistance from the federal government.
Wyoming lawmakers “took on a gorilla” with the passage of legislation to allow cryptocurrency banks, or Special Purpose Depository Institutions, to charter with the state’s banking division, he said. With Wyoming breaking new ground, federal regulators will likely need to refamiliarize themselves with their own rules to be comfortable accommodating Wyoming’s unique cryptocurrency statutes, he said.
Attitudes in Washington have been warming toward cryptocurrency. Federal Reserve Chair Janet Yellen made statements supporting cryptocurrency regulation earlier this year. Then Securities and Exchange Commission Chairman Gary Gensler delivered long-anticipated testimony to the U.S. Senate’s Banking Committee last week in which he offered a concrete commitment to formalizing a national regulatory framework for crypto.
“I believe that the SEC, working with the [Commodity Futures Trading Commission] and others, can stand up more robust oversight and investor protection around the field of crypto finance,” Gensler told lawmakers.
Neither the Federal Reserve or the SEC have defined cryptocurrency regulations, leaving behind a landscape Gensler described as a “Wild West” in the financial sector. Though some pro-cryptocurrency legislators have sought the types of regulations necessary for decentralized currencies to have a place in mainstream economies, others have pushed for more aggressive regulations intended to minimize the short-term volatility of cryptocurrency markets and protect consumers.
Lummis believes too much regulation on the maturing industry could stifle innovation, particularly at the state level, Lindholm said. Lummis has also raised concerns about federal regulators’ treatment of emerging financial technologies like cryptocurrency, particularly as lawmakers themselves continue to hash out the proper level of regulation for crypto.
“Any time we hear the term ‘regulation’ it worries us, especially on the federal level,” Lindholm said. “That direction perhaps would not be so friendly to Wyoming.”
Cryptocurrency production poses both economic and environmental challenges and opportunities.
In recent years, a number of cryptocurrency “mining” operations have emerged in natural gas fields around Wyoming, including two sites on state lands, officials with the Office of State Lands and Investments told lawmakers.
Such firms capture emissions from natural gas “flaring” (the controlled burn of waste gas at wellheads) to fuel generators specifically designed to run crypto “mines” . Flaring is much less prevalent in Wyoming than in places like New Mexico or Texas, however. Unlike other states, Obermueller said, Wyoming places strict limits on flaring, limiting the crypto mining industry’s potential for growth compared to North Dakota, for example. That state has built a growing crypto mining sector from natural gas operations along the Bakken Formation, he said, to minimize the economic impacts of fluctuations in fossil fuel markets.
“We don’t necessarily need that lifeline because we have the takeaway capacity to get the product to market, and we’ve constantly worked on ways to reduce, reduce, reduce,” he said. “We just don’t like [flaring] here.”
It’s also questionable whether the potential for cryptocurrency mining could be a “sweetener” to attract additional drilling operations to the state, he said.
“I wouldn’t say it’s off in the margins, but I don’t know that would be the biggest driver,” Obermueller said.
Wyoming lawmakers were treated to some good cryptocurrency news Tuesday, however.
Lummis’ bipartisan Financial Innovation Caucus is looking into developing legislation to formally regulate cryptocurrencies at the federal level while leaving sufficient room for states to propose their own regulations, Lindholm told lawmakers. The legislation would resemble Wyoming’s, clarify regulatory jurisdiction, and include language to guarantee consumer protections and define clear regulations for custodians of digital assets such as SPDI banks or cryptocurrency exchanges.
Caitlin Long, CEO of Cheyenne-based SPDI bank Avanti Financial, told lawmakers that regulation is not a question of if but rather, when. Cryptocurrency has grown into a $2.3 trillion industry, she said, and states’ individual efforts to establish blockchain-based businesses through decentralized autonomous organizations will likely force the government’s hand if they want to tax them.
For now, the major goal of Long and other advocates remains the same: education.
“We need to educate the U.S. Senate about what this industry actually doing and how [Congress] can be a friend, and how [crypto firms] can be a good corporate citizen here in the United States instead of running them overseas, which has been our consistent methodology by ignoring them over the last several years,” Lindholm said.