Aloha, Bitcoin enthusiasts: Hawaii, once notoriously unfriendly towards crypto, has just taken a significant step towards a more permissive stance.
Crypto has officially become legal in Hawaii.
Historically, the Aloha State held a reputation for being among the least crypto-friendly, second only to New York, a state with the infamous Bitlicense that Hawaii aimed to adapt. However, a recent news release from the governor’s office quietly announced a substantial change, stating that “digital currency companies will no longer require a Hawaii-issued money transmitter license to conduct business within the state.”
The announcement continues, stating that these companies can now operate as unregulated businesses, albeit with the responsibility to comply with any applicable federal licensing or registration requirements.
In essence, Hawaii’s regulatory approach has swiftly transitioned from stringent to a more relaxed “hang loose” attitude.
To License or Not to License
This policy shift comes after years of debates, studies, and unsuccessful attempts at legislative fixes. The Division of Financial Institutions (DFI), Hawaii’s financial regulator under the Department of Commerce and Consumer Affairs, had long asserted its jurisdiction over cryptocurrency, particularly exchanges, considering them as money transmitters.
Money transmitters in Hawaii are subject to stringent reserve requirements, demanding crypto exchanges to maintain cash reserves equivalent to their digital holdings. This policy, while mitigating catastrophic failures, made it impractical for crypto exchanges to operate in Hawaii, leading many major exchanges to deny services to customers in the state.
In an attempt to address the deadlock, the DFI collaborated with the Hawaii Technology Development Corporation (HTDC) to establish the Digital Currency Innovation Lab (DCIL). This pilot program created a regulatory sandbox allowing exchanges to serve Hawaii customers temporarily without fearing regulatory actions. In return, the state collected data on their business activities.
The pilot, launched in 2020, saw over 30 digital currency companies applying, with 16 admitted and twelve eventually participating. Even within the regulatory sandbox, Hawaii managed to register substantial activity, serving around 146,000 customers with transactions totaling $284 million in one quarter.
Battle of the Bills
As Hawaii aimed to embrace the economic potential of crypto in 2020, several bills were introduced in the state legislature to facilitate financial blockchain growth. However, only one bill, proposed by the DFI and modeled after New York’s Bitlicense, made it through both chambers. Despite widespread acknowledgment of the need for some regulation, critics argued that the proposed license was overly burdensome, leading to the bill’s demise.
Left in Limbo
The state extended the DCIL pilot, initially set to expire in 2020, by two years. Despite multiple legislative sessions, no decisive framework for crypto regulation emerged. The pilot was extended again in 2022 until June of this year, and the latest legislative session had no crypto bills on the agenda.
As the DFI and HTDC jointly declare the end of the pilot, Hawaii signals its reliance on the federal government to oversee the cryptocurrency space, marking a milestone in balancing innovation and regulatory responsibility. “The conclusion of the DCIL marks a milestone reflecting a commitment to balancing innovation and regulatory responsibility,” stated DFI commissioner Iris Ikeda.
