Is cryptocurrency dead in Hawaii?

HONOLULU (KHON2) — The bill that would have established a program for the licensure, regulation and oversight of digital currency companies in Hawaii was indefinitely deferred.

It’s unfortunate news for the cryptocurrency companies participating in the Digital Currency Innovation Lab (DCIL), the state’s first pilot program that allows digital currency issuers to do business in Hawaii without having to first obtain a state money transmitter license.

Without the passing House Bill 2108, the DCIL is scheduled to close for transactions on June 30, 2022, for both businesses and consumers.

“The disclosures explained that transactions allowed from July 1, 2011 to December 31, 2022 should be to close accounts,” said Iris Ikeda, Commissioner of the state Division of Financial Institutions (DFI).

Ikeda told KHON2 that those using licensed money transmitters can continue to conduct virtual currency transactions, as long as they meet the requirements.

However, if they are conducting transactions with companies that are not licensed as money transmitters — or not part of the DCIL — these companies are engaging in unlicensed activity for which DFI could take enforcement action.

Ikeda didn’t provide an example of what kind of enforcement action could be taken, but she did confirm this statement by Ryan Ozawa, who served as DCIL’s community engagement consultant:

“Hawaii cannot, and never did, ‘outlaw cryptocurrency.’ But it will again be difficult for the average person to invest and explore the space.”

Ryan Ozawa, DCIL community engagement consultant

“It’s true that Hawaii did NOT outlaw cryptocurrency transactions,” said Ikeda. “The guidance says that cryptocurrency transactions is covered by our money transmission law, and companies need to get that license.”

“I suspect some choose to ignore Hawaii law, and some genuinely feel they are not subject to it, especially if the exchange is based outside the U.S. I’d never ascribe nefarious or illegal intent,” Ozawa said.

“It’s reasonable to think that if they didn’t refuse to service Hawaii customers before, they won’t start now, though I suspect that the state DCCA DFI has probably not really gone after any of them aggressively.”

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Ozawa added that there’s still a chance the state might get more aggressive with certain companies that could cause them to fold up shop too. The DFI currently does not have a list of companies conducting money transmitter transactions using virtual currency, according to Ikeda.

“We are assessing the next steps since all of the bills at the legislature related to continuing virtual currency activity have not made it through the process,” Ikeda said. “The only bill alive for the legislature to vote on is a task force to study blockchain and cryptocurrency.”

The bill she’s referring to is Senate Bill 2695, which would establish a blockchain and cryptocurrency task force. The bill does not address current activity in their DFI/HTDC study.

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“It’s clear there’s a massive amount of interest and curiosity about digital currencies in Hawaii, just like everywhere else in the world,” said Ozawa. “The key is to balance opportunity with consumer protection, as any new and exciting area of technology is also a target of criminals and bad actors.”

Ozawa shared that the DCIL was designed to cautiously open the door to exchanges to see how consumers fared and to collaborate on developing sound policy. During his time serving as DCIL’s community engagement consultant, Ozawa knows that all the effort invested into the pilot program resulted in a carefully crafted license. He spoke openly about his disappointment:

“I’m disappointed that the legislature chose to set up its own task force to do even more research — resulting in confusion and frustration for everyone who participated in the regulatory sandbox and are now looking at having to close accounts and starting all over,” he said.

So what does cryptocurrency look like for Hawaii after this?

“Cryptocurrency will grow in Hawaii and everywhere, regardless of what lawmakers do,” said Ozawa. “Without a regulatory scheme in place, the state has just made it harder for everyday people to get into the space. Meanwhile, anyone remotely technical will be able to engage and invest with ease.”