In January, 2019 Wyoming introduced SF0125, a Bill which intends to advance the legitimization of cryptocurrencies and blockchain businesses in the United States. It aims to clarify the legal position of digital assets and enable digital asset custody through banks instead of other financial institutions. The Bill specifies three classifications of digital assets: (1) digital securities, which are treated as uncertified securities under the Uniform Commercial Code (UCC); (2) digital consumer tokens, which are treated as general intangibles within the UCC; and (3) virtual currencies, which affords cryptocurrencies the same treatment as money. Money has “super-negotiability” rules under the UCC Article 9 and, with this Bill, Wyoming would give virtual currencies the same status. These classifications are not novel, but applying them to digital assets clarifies their legal status, moving them out of the regulatory grey area where digital assets currently reside.
Wyoming would be the first state to offer legal status to digital tokens. Currently, businesses like Fidelity, Coinbase, Bakkt, Kraken, SALT Lending, and the like are taking a legal risk. It is unclear how a judge in litigation or bankruptcy will classify digital assets in the absence of clear laws. This Bill would remedy that uncertainty in Wyoming, and hopefully pave the way for other states to follow suit.
Regarding custody, the Bill enables Wyoming to authorize banks to opt into an enhanced supervision regime for digital asset custody, which meets the SEC’s requirements for “qualified custodians” of digital assets. Wyoming’s custody advancement for cryptocurrencies is also notable because it is managed through a bank, yet the bank itself would not accept deposits of digital assets. They would be considered “assets under administration” rather than bank deposits. This would be a service akin to the securities services provided by State Street, Bank of New York and JP Morgan.
Additionally, this Bill will give Bitcoin legal status as a virtual currency without involving an intermediary debtor. Without the intermediary, there is no debtor/creditor relationship. The owners of virtual currencies will have their property rights recognized by law, such that they will be able to use cryptocurrency in the direct, peer-to-peer nature envisioned by blockchain technology.
Notably, the Bill has enjoyed bipartisan support in both Wyoming’s House and Senate, likely because giving legal status to digital assets is beneficial to all. Among the sponsors are senators Drew Perkins (R), Ogden Driskill (R.) and Chris Rothfuss (D). As well as Speaker of the House, Steve Harshman (R) and House Majority Whip, Tyler Lindholm (R).
The passage of this Bill will make Wyoming an attractive option for cryptocurrency businesses and users, thus advancing fin-tech and the state itself. According to Bloomberg, Wyoming is angling to be America’s Cryptocurrency Capital. Delaware, the notoriously corporation-friendly state, makes about forty times more that Wyoming from registration and other filing fees. This Bill will incentivize the digital asset custody industry to locate in Wyoming in much the same way that South Dakota and Utah drew credit card and industrial loan companies with the legislation they passed in the 1970s and 1980s. It is the hope of Wyoming legislature that the influx of registration fees will boost the economy, and start a trend away from the mining and energy industries that currently dominate the state.
SF0125 marks the creation of a regulatory home for the digital asset custody industry in Wyoming.