A draft bill that would have governed how virtual currency businesses can operate in California has been cancelled by the state’s Legislature.
AB-1326, “Virtual Currency”, was proposed to amend existing money transmission laws to include virtual currencies like bitcoin. If signed into law, it would have taken effect on July 1, 2016.
Initially, the draft bill was applauded by leading industry startups. Its third reading in the Senate happened to be at the same time as the finalization of New York’s “BitLicense” regulations. Whereas California’s proposed rules were initially the rough equivalent of money transmission laws applied to bitcoin, those of New York added multiple additional provisions specific to virtual currency. These were heavily criticized by industry players as excessively onerous, leading several to cease services in the state.
Bitcoin regulations potentially pack a greater impact for California, the country’s leading state for technology, and which has the highest concentration of crypto industry venture activity. Likewise, New York’s BitLicense regulations, which took effect in the summer, were a major focus of attention on the country’s financial epicenter.
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Despite initial optimism, a number of organizations later lobbied against AB-1326, most notably Bitcoin Foundation and the Electronic Frontier Foundation (EFF). They argued that regulation will stifle innovation and harm the industry, particularly at such an early stage. Other arguments further claimed that the policy wording was vague. Assemblyman Matt Dababneh, who spearheaded the bill, denied these claims and argued that the EFF “has little expertise” on matters pertaining to financial regulation.
A few weeks ago, the bill was further amended with additional reporting requirements for virtual currency businesses.
Despite passing several readings in the Assembly and Senate by unanimous or near-unanimous votes, the bill was unexpectedly shelved by Senator Holly Mitchell. The bill’s status page now indicates that it is inactive, per the request of Senator Mitchell.
A Finance Magnates inquiry to Senator Mitchell’s office for more details was unanswered.
Colin Gallagher, Chair of Bitcoin Foundation’s Education Committee, reported that the bill failed to pass by September 11, the legislative deadline for all 2015-16 bills. He claimed that the bill failed “in the face of overwhelming opposition” and that “numerous veto requests were sent to the Governor by bill opponents in case AB 1326 ended up being rammed through in the late hours of Sept. 11.”