Forget the feds
There are 6,500 state elections. Some matter a lot
Hey, folks. Welcome to issue two of The State of Crypto: Election 2020. I'm Nikhilesh De and here we are, just over a week out from Election Day.
Today’s issue: the importance of state officials in shaping crypto policy throughout the U.S. Spoiler: They are, in fact, important.
Campaign briefing
An estimated 59 million individuals have now cast their ballots, out of a registered 209 million or so. Although cryptocurrencies are supposed to be decentralized, the winners of this election will get to shape and guide tech and crypto policy over the next few years. Last week I discussed the Big Tech implications of this election, but this week I want to focus on what’s likely to be an under-discussed aspect of the race.
I laid out the implications at the national level for CoinDesk this week. Here, I want to talk about the state-level races, which might be just as important as the federal ones.
Because U.S. law gives states some control over money transmission, a lot of what companies do depends on state-level regulations. It’s why exchanges need state money transmission licenses instead of applying for a federal license, for example.
The Office of the Comptroller of the Currency’s Brian Brooks hopes to change this. But there are no guarantees and his efforts will certainly face some legal challenges, so I wouldn’t expect any speedy implementation there. States might also be more flexible or willing to update their laws than the federal government. States, after all, have fewer lawmakers and a tighter set of priorities than a governing body for 330 million people.
Wyoming is a good example: Over the last two years state legislators passed a number of banking and finance laws that ultimately let a crypto exchange become a full blown state-chartered bank. Some of these state lawmakers are vulnerable to challengers. One of the lawmakers behind Wyoming’s bills, State Rep. Tyler Lindholm, lost a primary challenge and will no longer be able to champion cryptocurrencies as an elected official. He lost by about 200 votes.
State lawmakers are also looking at the idea of blockchain as a tool for storing records or cryptocurrencies for paying taxes. These efforts, like much of what the industry is doing, are in their early days. It takes an engaged electorate to ensure that those drafting bills believe it’s worth it.
New Jersey lawmakers (who are largely not on the state ballots this year), for example, just passed a bill aimed at regulating the state’s crypto industry out of committee. If it is passed by the bicameral legislature and signed by Governor Phil Murphy (D), the state will create its own licensing regime for crypto businesses, a first for the Garden State.
I first wrote about this bill in February, meaning lawmakers have already had eight months to consider the merits or lack thereof in creating a license. My understanding is the bill was initially informed by stakeholder input, but there hasn’t been a whole lot of feedback since its introduction.
Anyway, according to Ballotpedia, 86 state legislatures are holding elections this year, accounting for around 6,500 seats. At least a few might be interested in crypto, so it may be worth it for the intrepid voter to explore their candidates’ views on the subject.
Fast fact
On the ballot
A number of this year’s candidates for federal office have proposed crypto-related bills or suggested policies. Meet a few of them:
Rep. Warren Davidson (R-OH)
Crypto stance: Pro-crypto, advocate for regulatory clarity
Rep. Davidson, a first-term congressman, is a firm proponent of cryptocurrencies and creating regulatory clarity through legislative action. He has sponsored the Token Taxonomy Actat least twice (with Rep. Soto [D-FL]) in the hopes of amending U.S. securities laws to create clear categories for cryptocurrencies.
Rep. Brad Sherman (D-CA)
Crypto stance: Once said the Facebook-started Libra project might be worse than 9/11
Rep. Sherman, a longtime representative from California, has made his anti-crypto stance clear over the past few years, going so far as to call for a complete ban on cryptocurrencies during a House Financial Services Committee hearing. More recently, during a hearing over the Libra project, he said the stablecoin project would be a “godsend” to criminals, and touted the dollar’s role in enforcing sanctions.
Rep. Patrick McHenry (R-NC)
Crypto stance: Pro-crypto, but wants responsible innovation
Rep. McHenry, running for his fifth term in Congress, is the ranking member of the House Financial Services Committee, which oversees much of the crypto space. He’s warned against regulating too heavily, saying there’s “a great opportunity around this technology.” However, he’s also raised concerns with certain projects, calling for a hearing around Libra as soon as it was announced last June.
Rep. Pramila Jayapal (D-WA)
Crypto stance: Introduced a “digital dollar” bill
Rep. Jayapal, a first-term congresswoman, co-sponsored a stimulus bill with Rep. Rashida Tlaib (D-MI) that would create a “Digital Dollar Account Wallet” accessible to every U.S. resident and granting them access to financial services. The chief idea is to use this system to issue $2,000 per month to each resident, backing the funds by minting a pair of $1 trillion coins. Jayapal is also a member of the House antitrust subcommittee, and told CNBC earlier this month that new bills targeting Big Tech monopolies could be introduced next year.
Rep. Ted Budd (R-NC)
Crypto stance: Pro-crypto
Rep. Budd, a first-term congressman, has co-sponsored a few bills to provide regulatory clarity around cryptocurrencies in the U.S. (alongside Rep. Soto), including the Virtual Currency Consumer Protection Act of 2018. He’s also sought to try and clarify crypto taxation laws, introducing a bill to prevent double-taxation on crypto transactions. Last year, he also wrote a letter with Coin Center asking Securities and Exchange Commission Chair Jay Clayton to say whether he agreed with one of his directors that ether, the second-largest cryptocurrency by market capitalization, did not look like a security.
Early returns
Prediction markets are an effort to create better polling by ensuring participants have “skin in the game,” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens.
CoinDesk is monitoring crypto prediction markets to see how they align with traditional polls and the final election results.
Here’s what a random sampling of markets says (as of Oct. 25, 2020):
Centralized markets:
PredictIt: Joe Biden (D) has the best odds of winning the presidency.
Iowa Electronic Markets: Democrats are likely to receive the majority of the popular votes.
Decentralized markets:
Augur: Donald Trump (R) will not be re-elected in 2020.
FTX: Traders have bet more on Biden winning than on Trump winning.
Neutral polling:
FiveThirtyEight: Biden is favored to win the presidential election.
Sounding board
Feel free to reply any time or email social@coindesk.com or nik@coindesk.com.
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