To Whom It May Concern,
Blockchain Association (the “Association”), is a non-profit organization dedicated to improving the public policy environment for public blockchain networks so that they can develop and prosper in the United States. We endeavor to educate policymakers, courts, law enforcement, and the public about blockchain technology and the need for regulatory clarity to allow for a more secure, competitive, and innovative digital marketplace. The Association represents more than 100 industry leaders who are committed to responsibly developing and supporting public blockchain networks fueled by cryptocurrencies. Our diverse membership reflects the wide range of this dynamic market and includes crypto exchanges, custodians, software developers, early-stage investors, trading firms, and others supporting the crypto ecosystem. The purpose of this letter is to respectfully state our opposition to SB 1756.
The passage of SB 1756 would be detrimental to New Jersey’s efforts to support innovation in the crypto and Web3 ecosystem throughout the state. The bill would effectively outlaw all of the crypto businesses that are currently thriving in the Garden State unless they are able to navigate an onerous, uncertain, and likely expensive licensing regime. We strongly urge you to reconsider this bill.
We fundamentally agree with the bill’s premise that there should be robust protection for consumers and recognize the reputational challenges the industry faces. Unfortunately, SB 1756 would not achieve the laudable goal of increased financial security for New Jersey residents. Rather, it would likely drive innovation in the crypto and Web3 space to other states. Indeed, even across the river in New York, a less stringent regulatory regime than the one proposed in this bill exists.
Since its implementation in 2015, the New York “BitLicense” has licensed only thirty-one entities. The requirements of obtaining a “BitLicense,” which bear many similarities to those SB 1756 would create, have proved deeply onerous and unworkable for many crypto companies, particularly for smaller startups that lack the resources to compete with incumbent financial institutions on compliance costs. The “BitLicense” has created an environment where only the biggest and most wealthy entities can manage to comply, while those who are just getting off the ground are left in the cold. Many jobs and opportunities that would have benefited New York are now benefiting states such as Texas and Wyoming. California recently passed legislation that mirrored the New York regulation; however, Governor Newsom wisely vetoed the bill as his administration continues to explore how to effectively and safely implement blockchain technology in the state through responsible, thoughtful regulation.
The Association and the blockchain industry have significant concerns with the language and definitions proposed by SB 1756 and its Assembly companion AB 2371, which exceed New York’s regulation in scope and application. Specifically, the definitions of “digital asset” and “digital asset business,” and the activities prohibited without licensure by the State. Activities as simple as issuing a digital asset and receiving or transmitting a digital asset would require licensure by the state under this bill. These prohibitions would be devastating to a burgeoning Web3 industry that has seen significant growth in the non-fungible token (NFT) space. Further, the definition of “digital asset” is so overly broad that it could be interpreted to include any digital asset or non-blockchain digital representation of rights such that customer loyalty rewards programs or even airline miles could be prohibited from being offered to New Jersey residents.
New York provides clear exemptions to distinguish virtual currency from other digital assets. The Bitlicense is intended to regulate custodial risk in the state, SB 1756 makes no distinction between custodial and non-custodial entities. It would treat large crypto exchanges handling hundreds of millions of dollars in customer investments the same as small startups offering unique digital art for sale in the form of NFTs. In effect, the bill would prohibit all unlicensed digital asset business activities and force smaller companies without the resources to apply for a costly license to halt their operations in New Jersey. Despite the clear delineation of virtual currency in New York’s regulation, the Bitlicense process remains so onerous and cost prohibitive that many companies have chosen to avoid the state altogether. Should this legislation become law, it would immediately become the most restrictive and anti-competitive regulation in the country. In addition, the imposed effective date provides well meaning companies with far too little time to come into compliance and will likely cause a mass exodus of many promising startups from New Jersey.
For these reasons, we urge the New Jersey State Senate to exercise restraint and not advance this legislation without further examination of its impact. Indeed, imposing such a restrictive regulatory regime on a growing industry will have an adverse effect on the state as it seeks to remain competitive in the innovation and technology space.