By Keli‘i Akina
What a nice surprise it was this week when I learned that the state Division of Financial Institutions had quietly decided to let cryptocurrency companies operate freely in Hawaii, just as they can most everywhere else.
This is an incredible win for economic freedom in our state, which isn’t known for cutting red tape.
Specifically, the DFI has decided that cryptocurrency exchanges in Hawaii do not have to comply with the state’s money transmitter law, which had required the exchanges to hold cash reserves equal to their digital assets.
This “double reserve” requirement — imposed on the companies in 2014 — meant that crypto exchanges such as Coinbase or Binance needed to have millions or even billions of dollars in cash on hand to match the value of their existing bitcoin, ethereum and other digital currency holdings.
The result was that many crypto companies abandoned Hawaii, leaving most Hawaii residents out of the bitcoin boom.
That is when my colleagues and I at the Grassroot Institute of Hawaii became involved in the issue. We worked to educate the public and lawmakers about the double reserve requirement and why it should not apply to crypto companies.
At first, it was tough going. Many people still don’t know what a bitcoin is or understand how it works. But interest in crypto has grown over time, and Hawaii officials and lawmakers started rethinking the state’s crypto policies.
In 2020, the Division of Financial Institutions and Hawai‘i Technology and Development Corp. launched the Digital Currency Innovation Lab that allowed a select group of crypto companies to operate in Hawaii without being subject to the double reserve requirement.
As that so-called sandbox was set to expire in June 2022, we saw a series of bills introduced in the Legislature that would have let all crypto companies operate freely in Hawaii.
On the other hand, we also saw bills such as the 88-page tome proposed by the DFI that would have severely micromanaged cryptocurrency companies to the point of removing any incentive for them to operate in Hawaii, if they couldn’t stay in the sandbox.
Ultimately, legislators didn’t come to an agreement on the issue, so the DFI extended the sandbox for another two years.
Last year, the Legislature approved a slightly revised version of that 2022 bill [the DFI proposal], but Gov. Josh Green, thank goodness, wisely vetoed it.
This year, with the sandbox set to expire in June and no promising crypto bills left in play at the Legislature, we were left wondering what our officials’ next move might be.
Well, we got our answer earlier this week when we found out that Gov. Green’s administration had unceremoniously ruled the Digital Currency Innovation Lab a success and would be allowing all cryptocurrency companies to operate freely in Hawaii beginning in July.
In a Jan. 25 news release, the Office of the Governor said the crypto sandbox had demonstrated that the business “did not align with the concept” of the state’s money transmitters law, and that “the companies will be able to continue transaction activity as an unregulated business” — though subject still to “any applicable federal licensing or registration requirements.”
In short, common sense won. As a result, Hawaii has gone from being one of the worst states in the country for crypto to being one of the best.
I would like to think that the Grassroot Institute played a role in this wonderful turn of events. For years, we stood firm at the Legislature against unreasonable regulations on cryptocurrency, offering in-depth research and careful reasoning to make our case.
And now it appears that Gov. Green’s administration decided our views were right all along, for which I am grateful.
Deregulating cryptocurrency in Hawaii is a huge win, and I hope it’s a sign that our government officials have become more open to supporting policies that will promote investment, prosperity and economic freedom in our state.
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Keli‘i Akina is president and CEO of the Grassroot Institute of Hawaii.