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.”
Environmental considerations
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.
Looking forward
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.
Support independent reporting — donate to WyoFile today.
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.
Really what everyone should look at is how this whole thing has been kept in the background instead of making the front paper when it became something our state was working on bringing in. That alone says a lot. They placed all these laws to regulate crypto and yet not once did they throw it on the front page for the citizens to have a word. This is a pretty big step for the state and for the country yet our representatives didn’t even try to inform its communities of this huge step but instead have been hush hush on whats really been going on. Why? I’m guessing that it’s because once people see the real picture they wouldn’t have the support they needed but once it’s done and here we’ll we don’t get a say so. As a state, as citizens we don’t stand to gain much here. Caitlin Long gains along with anyone else who has investments in crypto and blockchain in the right way. It’s not about helping anyone but themselves and their personal lives. Do the research….why wyoming? they are bringing in crypto mining companies that take massive amounts of energy to run and we are amongst the top energy suppliers. The amount it takes to run these things is crazy…and we aren’t even going to gain a substantial amount of jobs for the state because it’s machines that do the work. Not to mention we have no state level taxes so we gain nothing there either. But you know who does gain…yup the ones who have their hands in the crypto/blockchain investments, which you can bet is the very ones who made this happen behind closed doors. So what will we see from it all? Maybe we should ask China since they banned mining! More carbon dioxide release the coal, energy consumption like never before, electronic waste and don’t forget the expected 2% increase in global warming. But sure let’s bring in all these crypto miners and let people bank from here no matter where they live…we will take nothing in return (worth it anyway) so that greedy people keep their pockets full. They won’t be the ones living next to a “mining city” where there was once beautiful land. And most of the citizens don’t even know that they’re already letting companies in, that land has been sold for this purpose let alone what this all really is. Really the way this is all playing out its easy to see that the people, our community and everything else that should matter was no where in sight when it came to a poor crypto decision that made them money for themselves. Seriously look into it ALL and educate yourself on what they’re doing because they haven’t even tried to give give us that!
Wyoming will come to rue the day it fell for the cryptocurrency medicine show. You elect some real dummies, which reflects on YOU!
I don’t know a lot about cryptocurrency, but I just have the same feeling about it that I get when I hear about any other Ponzi schemes. It just seems like a way to evade taxes and game the financial system. It feels like dark money and risky. If it is legal I think it should be regulated. Personally, I’ll stick with the Benjamins-$$.
From Wyoming’s PAW director: “We just don’t like flaring here.” He should know, one would think, that we have a statute that addresses and defines “waste”. It’s not a matter of “we don’t like.” Sheesh.
Criminals love Wyoming. Regulations aren’t the problem if they address real issues needing regulation. Look at all the questionable activity hiding behind Wyoming’s LLC industry. Crypto is far worse and hardy secure as recent events have shown. It is not much more than gambling that the public has not embraced for anything other than gambling
Blockchain is interesting.
Am I understanding this correctly?
Is Wyoming really waiting for the federal government to create new regulations that would require a private organization (i.e., the American Banking Association) to violate its own policies and issue bank routing numbers for cryptocurrency use?!? Are Wyoming Republicans really working with a bi-partisan group in Congress to regulate the marketplace?!? That seems to be exactly was said at this legislative hearing.
I am surprised that Wyoming Republicans see value in federal regulations (something they have traditionally opposed). I am even more surprised (and encouraged) to hear that these Republicans are reaching out to Democrats to explore solutions. [Watch out: the WYGOP may soon attack this obviously RINO behavior.]
But seriously, we need to better understand the pitfalls and opportunities of crypto currencies before we can just launch them into American banking system. ABA bank routing numbers have been a key part of the financial marketplace for more than 100 years, so let’s be careful as we push them to change the rules. Also, it seems misleading for advocates to imply that we are currently waiting on federal regulators to issue new regulations, as if that were something that was imminent (it is not).
In fact, Treasury just sanctioned (for the first time ever) a crypto-exchange for processing ransomware payments. It seems far-fetched to expect the USA to embrace crypto-banking at a time when crypto’s actual use is increasingly tied to one international incident after another. It also seems unrealistic to expect traditional bankers to roll out a welcome mat any time soon, let alone anticipate that they might soon abandon their deeply-rooted aversion to risk.
Let’s keep it real.