Despite a recent spate of bad news for the crypto industry, Wyoming will still have its business

It’s been a tough year for cryptocurrency, a decentralized digital payment system that uses coding to verify transactions. The collapse of massive exchange FTX made international headlines, and several other companies in the industry has recently failed. Signature bankwhich focused heavily on crypto also failed and the price of major coins crashed earlier this month.

For many of those in the crypto industry, the recent criticism and negative press attention is well deserved.

“I’m not going to defend the activity of criminals and fraudsters in this industry,” said Caitlin Long, a massive crypto supporter. “In fact, I’ve been very public and called them out.”

Long is a Wall Street veteran and current CEO of Custodia Bank. She became fully involved in the technology a few years ago after trying to donate to her alma mater, the University of Wyoming, with Bitcoin, the most popular cryptocurrency. She couldn’t because of state laws, and so quickly discovered that there was an opportunity for Wyoming.

“We’re not going to try to be on the coattails,” Long said. “We can actually lead in something here.”

Since then, Long has helped make Wyoming one of the most crypto-friendly states in the country. Over the past few years, state lawmakers have passed a couple of dozen laws trying to attract new crypto businesses to the windswept Cowboy State, including one this year which would empower the Treasury to issue its own digital currency.

Long said crypto has brought new people and jobs to Wyoming, which has struggled for years to diversify its economy beyond the energy industry.

“This is amazing. I see people coming from Denver, as opposed to our kids going to Denver the other way around,” she said.

Other western states have also tried to stay ahead. Colorado was the first state to accept cryptocurrency to pay taxesand a study ranked in Nevada as the best state for crypto enthusiasts due to its friendly laws and high number of employees in the sector.

But some experts question whether states should try to attract crypto.

“These crypto assets are not tied to the real economy at all,” said Chris Odinet, a law professor at the University of Iowa. “It is not merchants and commercial firms with consumer and commercial goods and supply chains behind them. So then I think you have to ask, what exactly is this?”

At the center of this debate is the battle over whether crypto should be part of banking. Wyoming is the first state to allow companies to house digital currencies alongside fiat currencies under one roof. Fiat currencies are backed by a government, rather than a physical commodity like gold or silver. This is called a special purpose depository institution (SPDI). Importantly, these cryptoassets are backed by cash reserves, but Odinet said they still might not be a good idea.

“Allowing the banks themselves – existing banks – to offer crypto investment or crypto custody services is, in my view, a serious mistake,” he said. “I think if the 2008 financial crisis taught us anything, it’s that keeping banking simple is really a pillar of avoiding financial damage and the contagion that can follow.”

Earlier this year, the Federal Reserve Board rejected the charter application of Long’s Custodia Bank. They said that the firm’s focus on crypto presented too many safety and soundness risks. Long was not a fan of that decision, and litigation over how the Fed handled Custodia’s application waiting.

“Bizarrely, the Biden administration decided to make an example for the rest of the crypto industry of Custodia,” Long said. “If they really wanted to solve the crypto problem, frankly, they should look at the laws that the Wyoming legislature in their wisdom passed.”

Meanwhile, Congress is trying to regulate digital assets. Wyoming’s junior senator, Cynthia Lummis has been called “Crypto queen“, and recently introduced Act on responsible financial innovation with Sen. Kirsten Gillibrand (DN.Y).

“It will take our existing financial regulatory structure and just put cryptocurrency assets on top of it,” Lummis said during a recent press conference.

The US Senate has not yet taken action on the bill. For self-described skeptics like Odinet, there is a place for cryptocurrency and especially its underlying technology, blockchain – but in a more limited capacity.

“I understand and agree that banks will and should play a role in supporting crypto firms, but only as they support any other commercial enterprise,” Odinet said.

In a recent letter regarding Wyoming’s cryptocurrency laws, Governor Mark Gordon exemplified both a nervousness and excitement he has regarding digital assets. Many citizens, including investors in Bitcoin, will likely tread carefully in the coming months and consider whether crypto is a valuable asset to their society.

“First movers are not always rewarded. However, they are essential to progress, he said.

This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, the O’Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, KUNM in New Mexico, with support from affiliated stations throughout the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.