A newly approved law that will require digital asset exchanges and other crypto businesses to seek a licence in order to operate in the state is expected to be signed by California Governor Gavin Newsom.
The Digital Financial Assets Law, also known as California’s “BitLicense,” is modelled after the 2015-implemented BitLicense law in New York. If Democratic Governor Gavin Newsom approves it, California’s law would take effect in January 2025. This is California’s second effort to establish a “BitLicense” system. The initial attempt, made in 2015, was unsuccessful and put on hold due to objections from a state lawmaker.
The bill’s sponsor, Assembly Member Timothy Grayson, previously stated that the newness of cryptocurrencies is the reason behind its excitement. On the other hand, it also increases the risk for consumers because these businesses are not sufficiently regulated and do not have to abide by many of the same rules that apply to other businesses.
One of the conditions is a restriction on stablecoin trading by California-licensed companies until 2028 unless the stablecoin is issued by a bank or has a licence from the California Department of Financial Protection and Innovation. This is comparable to a bill that the US Congress considered (but never approved) that would have required stablecoin issuers to hold a bank charter.
The law would “create shortsighted and unhelpful restrictions that would impede crypto innovators’ ability to operate and push many out of the state,” according to the Blockchain Association, a trade group for the sector.
A provision in the bill’s stablecoin section also mandates that stablecoin issuers who keep securities as a reserve have an amount “not less than the aggregate amount of all of its outstanding stablecoins issued or sold in the United States.” The measure also mandates that the calculation of the aggregate market value must follow the US generally accepted accounting principles (GAAP).