'Wild, wild west:' state lawmakers explore regulating cryptocurrency

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State lawmakers in Lansing say the recent sell-off in cryptocurrencies only furthers their desire to explore a regulatory regime for the volatile financial technology.

Legislation making its way through the state Senate would create the “Blockchain and Cryptocurrency Commission.” The legislation would prescribe the proposed commission’s membership — consisting of a wide array of people from business, government and education — a variety of duties.

That includes “the investigation of blockchain and cryptocurrency to develop a master plan of recommendations for fostering an expansion of blockchain technology and the cryptocurrency industry in Michigan,” according to an analysis of Senate Bill 888.

The bill makes for “a starting point,” according to its sponsor, state Sen. Jim Ananich, an outgoing state lawmaker from the Flint area and leader of the body’s Democratic minority caucus.

Given the recent “total downfall” of numerous cryptocurrencies in recent weeks and months, Ananich said, it’s an ideal time to begin putting guardrails in place.

“Investors need to have some information and some sort of assurance that what they’re investing in (is stable),” Ananich told Crain’s in an interview this week. “Where Bitcoin seems to be sort of the standard, these other (cryptocurrencies) seem to be a little bit of the wild west.”

The bill is scheduled to get a vote before the full state Senate on Thursday, and has enjoyed the support of Senate Majority Leader Mike Shirkey, a Jackson County Republican who testified in favor of the legislation at the May committee hearing.

“On the surface, this may seem like a simple bill to approve and create a commission, but it’s way, way more than that,” Shirkey said last month in his testimony. “We know that one of the goals of all of us, I believe, is to make Michigan attractive to human capital and financial capital. And I can’t think of a topic today that is more pertinent than making sure Michigan is welcoming to the trends and the use and application of blockchain technology and everything associated with cryptocurrency.”

Ananich’s proposed legislation received its first hearing on May 12, in the state Senate’s Economic and Small Business Development Committee. On the day leading up that hearing, a massive sell-off in cryptocurrencies wiped more than $200 billion of wealth from the market in just 24 hours, according to estimates from price-tracking website CoinMarketCap.

The broad plunge that day in the crypto complex, driven by the collapse of the TerraUSD stablecoin, hit major tokens hard. Bitcoin plunged by as much as 10 percent that day to its then lowest level since December 2020, while Ethereum dropped as much as 16 percent.

Conditions have not improved much in the weeks since then, as crypto prices have largely been on a downward trend, as has the more traditional equities market.

Over this past weekend, Bitcoin for the first time in years fell below its long-traded value of $20,000 or higher, but has since moved back to around that figure.

The move off of sub-$20,000 lows occurred as broader risk sentiment stabilized and speculative investors await their next trading prompts, Informa Global Markets wrote in a note Tuesday.

The firm added that data from on-chain analytics firm Glassnode shows that as of June 20, 56.2 percent of addresses were still worth more in dollar terms than when their coins entered them, which Informa said raises questions about the severity of the current bear market. That’s compared with recent Glassnode data showing the average purchase price of all Bitcoins in circulation was around $23,430 — so, above current levels.

Still, it’s the bigger picture that’s really driving Bitcoin’s price, according to the Informa note.

“Macroeconomic conditions need to improve and the Fed’s aggressive approach to monetary policy has to subside before crypto markets see a bottom,” the firm wrote.

Should the Ananich bill be signed into law and a commission forms to offer recommendations to state lawmakers, policymakers and observers of the crypto industry do see some low-hanging fruit.

Other states, such as Massachusetts, are forming similar commissions to explore crypto regulations, notes Brian Wassom, a partner in the Clinton Township office of law firm Warner Norcross + Judd LLP, with a practice focusing on emerging technologies such as blockchain.

The trend for state governments, says Wassom, has been to focus on more simple items such as defining a blockchain transaction, while leaving the “thorny issues,” such as whether crypto should be treated as a security, up to eventual guidance from the U.S. Securities and Exchange Commission.

While a commission makes for a “logical first step” for states to take, the crypto will likely remain highly speculative absent federal regulation, said Wassom.

“I think we don’t make real progress until we have some sort of national uniformity,” Wassom told Crain’s. “And the SEC has certainly been looking at these issues. I would expect to get SEC guidance on some of these bigger picture issues before long, like within the next couple years.”

Ananich, the Flint state lawmaker, also said he believes the federal government makes for the ideal place for regulations, but said some obvious areas to explore include allowing residents to pay their bills in crypto or invest some of their retirement accounts into the financial technology.

A recently updated version of the Ananich legislation — which is what was referred from the committee — includes upwards of a dozen areas for the eventual commission to explore.

Those range from how crypto can be used as legal tender, whether mining of cryptocurrency should be encouraged in the state, the environmental impact of doing so, and what kinds of consumer protections should be in place.

The proposed legislation is intended not as an endorsement of cryptocurrency, but rather as an acknowledgement of the growing importance of the technology, and “how does Michigan get ready,” state Sen. Jeremy Moss, a Southfield Democratic lawmaker, said during a committee meeting last week.

Ultimately, Wassom, the Warner Norcross attorney, said certainty is always the preference for the clients he advises. Some level of regulations helps achieve that, he said.

“The people I talk to and advise that are considering ventures in (the crypto) space, they would love to see more certainty and more … options for enforcing their rights when things go sour,” he said.

— Bloomberg contributed to this report