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California Governor Gavin Newsom.
Photo by Monica Schipper/Getty Images for Bloomberg Philanthropies
California Governor Gavin Newsom on Friday vetoed a bill that would have brought strong regulations to the crypto market that industry participants said would have stifled innovation in the state.
The bill had flown under the radar until it passed both houses of the California legislature with near-unanimous support. If it had become law, the bill would have brought many regulations to the crypto industry that consumer advocates had long sought — including a requirement that trading platforms seek the best price when executing trades for customers. Such changes could have transformed the digital asset market, not just in California, but nationally, if firms changed their operations to comply with the state’s laws.
The bill would also have banned until 2028 certain types of “stablecoins,” whose values are pegged to a dollar, and likely required others — including those issued by Circle Internet Financial and Tether Holdings — to obtain California licenses to be offered on exchanges to state residents.
“It is premature to lock a licensing structure into statute” without considering an ongoing effort to examine the crypto market and potential upcoming federal regulations, Newsom, a Democrat, wrote in a letter accompanying the veto. “A more flexible approach is needed to ensure that regulatory oversight can keep pace with rapidly evolving technology and use cases, and is tailored with the right tools to address trends and reduce consumer harm.”
Newsom said in the letter that he would work with the Legislature on a new bill when federal regulations “come into sharper focus.”
The governor’s veto comes just a week after the White House released what it called the “first-ever comprehensive framework” for digital assets. These reports mainly outlined areas for further study rather than making specific policy recommendations, but they urged agencies including the Securities and Exchange Commission and the Commodity Futures Trading Commission to step up enforcement efforts against bad actors in the industry, to the distress of some. crypto followers.
In California, a last-minute lobbying effort by the industry — which argued the bill’s new licensing regime could push crypto firms out of the state — failed to stop it from passing the legislature.
Industry leaders on Twitter hailed Newsom’s veto.
Newsom “sets a standard for getting it right, rather than getting it fast. The opportunity to harmonize responsible digital asset innovation in the United States, where innovation, inclusion and integrity are not trade-offs, needs political leadership,” wrote Circle Chief Strategy Officer Dante Disparte.
In late August, the bill passed the state Senate 31-6 and the state Assembly 71-0. While the legislature can override Newsom’s veto with two-thirds support from each house, in practice it has almost never taken that step.
Democratic Assembly member Tim Grayson, who authored the bill, in a statement said that he hopes to work with Newsom’s administration in the future on crypto regulations.
“The cryptocurrency market is underregulated at best and deliberately rigged against everyday consumers at worst,” Grayson wrote. “A financial market cannot be considered healthy if there are no guardrails in place to protect consumers from fraud and bad actors.”
Write to Joe Light at [email protected]
