Federal law places cryptocurrency exchanges in the same regulatory category as traditional AML/CFT gatekeepers, financial institutions, and money transmitters.
They see crypto exchanges as "money transmitters" (think MoneyGram or Western Union) on the basis that cryptocurrency tokens are “other value that substitutes for currency.”
State law is where things get even trickier. Hawaii enforces its own regulation requirements. The most controversial being the "double reserves" requirement in addition to obtaining a state money transmitter license. This requires any cryptocurrency exchange operating in Hawaii to hold reserves of liquidity in an amount equal to all of the digital assets held by their users.
What is the DCIL?
The DCIL states:
"In partnership with the Hawaii Division of Financial Institutions (DFI), this program is expected to:
* Create economic opportunities for Hawaii through early adoption of digital currency
* Offer consumer protection by providing guidance to issuers of digital currency
* Provide data to shape legislation supporting digital currency"
Main catalyst for why COINBASE left Hawaii (link at the bottom).- Hawaii in early 2017 as a result of a policy, imposed a double reserve requirement on Coinbase’s business. Coinbase stated, "The existing policy therefore required virtual currency operators to hoard cash stockpiles in equivalent dollar value to virtual currency reserves already secured on behalf of their customers; in essence a double reserve requirement. Rather than attempt to operate under an untenable business model, Coinbase—and to our knowledge, all law-abiding virtual currency businesses—ceased operations in Hawaii."
What does all this mean? 1: At the moment, regulation is such that certain cryptocurrency exchanges feel it is either not possible or not worth it to operate in our state. 2: A trial/pilot program exists that allow a group of companies to operate in Hawaii until January 2022. At which time the information collected over the programs lifespan will be used to determine how to move forward as a state in the cryptocurrency and digital asset world. 3: With ever growing mass adoption in the world of crypto and it's related technologies, it is unclear if Hawaii will choose to grow as a state, together with innovation, or remain on the side-lines as the rest of the world continues to explorer the digital frontier.
-Hawaii State Legislature (HB2257)
-Hawaii State Legislature (HB3082)
-HB2257 (Coinbase response to the Act starts on page 9) HB2257_HD2_TESTIMONY_CPH_04-03-18_.PDF (hawaii.gov)
Please see Coinbase blog post to Hawaiin customers: How Bad Policy Harms Coinbase Customers in Hawaii | by Juan Suarez | The Coinbase Blog
Sources: -Hawaiian Technology Development Corporation https://www.htdc.org/about/https://www.htdc.org/programs/
-Hawaii's Department of Financial Institutions http://cca.hawaii.gov/dfi/
Why we no longer have access to Coinbase. Check it out here.
Dive deeper here
The NASSA's take on cryptocurrencies
Picture sources: front page http://baseberry.com/archives/3863