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It’s now legal for cryptocurrency exchange platforms to do business with Hawaii consumers under a two-year pilot project that began Wednesday.
A dozen digital currency transmitters were selected to participate in the program formed by two state agencies.
State officials said the new “Digital Currency Innovation Lab” program is intended to position Hawaii as a place where financial technology, or fintech, can grow in a way that leads to new economic opportunities while also protecting consumers against risks that come with digital currencies such as Bitcoin, Dogecoin, Ethereum, Litecoin, ZCash and others.
“Hawaii-based consumers can look forward to a variety of options for services offered by digital currency companies in the state,” Iris Ikeda, state commissioner of financial institutions, said in a statement. “I anticipate leveraging this opportunity for our state to develop a robust understanding of one of the most exciting areas in fintech.”
The pilot project also is intended to yield insights on how to revise state law to allow the industry to expand and operate under fair and safe regulations.
Cryptocurrency exchanges had effectively been blocked from doing business in Hawaii since 2016 when the Division of Financial Institutions, part of the state Department of Commerce and Consumer Affairs, interpreted state law governing money transfer businesses as applying to virtual currency brokers. That interpretation subjected cryptocurrency brokers to licensing and asset reserve requirements that were too burdensome.
This law, according to a 2018 claim by one industry supporter, made Hawaii the only state where consumers couldn’t trade virtual currency.
Under the new program created by the DCCA and the Hawaii Technology Development Corp., the 12 brokerage firms are allowed to do business without complying with the law, though they will be supervised by the Division of Financial Securities and must report transaction data and customer complaints to the agency.
The 12 participating companies, which were selected from 19 applicants, include the Facebook-owned entity Novi Financial, popular stock investment app Robinhood and Maui-based Cloud Nalu.
Apex Crypto, bitFlyer USA, BlockFi Trading, CEX.IO, Coinme, ErisX, Flexa Network, Gemini Trust Co. and River Financial round out the group.
The U.S. affiliate of Tokyo- based bitFlyer said it’s in business in the Aloha State as of Wednesday.
“We are happy to partner with the state of Hawaii to bring our world-class services here,” Joel Edgerton, bitFlyer USA chief operating officer, said in a statement. “Now residents in Hawaii have access to a trusted, licensed exchange to support their Bitcoin and cryptocurrency trading.”
Hawaii regulators have had concerns about the industry harming consumers.
Two years ago, the Division of Financial Institutions supported a bill at the Legislature that would have made virtual currency brokers provide Hawaii consumers with this warning: “Most virtual currencies are based upon computer cryptography and derive their value solely from the market’s perception of their value, which can experience great swings. … You should be aware that there is a potential for you as a consumer to lose all of your virtual currency.”
That bill, which would have amended regulations on digital currency transmitters, didn’t pass.
Now the pilot program should help shape future regulations for cryptocurrency trading in Hawaii.
“DFI is leveraging its statutory authority to provide an innovative way to introduce digital currency issuers into the state of Hawaii, while ensuring the safety of our consumers,” Ikeda said in a statement in March announcing plans for the program. “By acknowledging digital currencies as a transmission vehicle of the future, we will be able to craft legislation that is conducive to its development in Hawaii.”
Len Higashi, acting High Technology Development Corp. executive director, added: “By spearheading the Digital Currency Innovation Lab, Hawaii can position itself on the forefront of financial technology and, potentially, reap the economic benefits that accompany the leadership stance taken. Through the (lab), we hope to identify opportunities for economic development through this effort and (are) very optimistic that we will be able to do so.”