A law to build a regulatory framework for the growing cryptocurrency industry in New Jersey was moved forward by the Assembly’s Science, Innovation, and Technology Committee and the State Senate’s Commerce Committee.
The goal of the Digital Asset and Blockchain Technology Act is to provide transparency, consumer protections, and a licensing structure for operators and consumers of virtual currency transactions in the Garden State.
State Sens. Nellie Pou (D-35) and Andrew Zwicker (D-16) served as sponsors for the Senate version of the bill (S-1756); Assemblywoman Yvonne Lopez (D-19) is the the Assembly sponsor (A-2371).
“New Jersey is a hub of innovation and, with this bill, we can lead the nation in providing thoughtful regulation to the industry,” said Lopez.
Under both versions of the bill, individuals would need to obtain a license from the New Jersey Department of Banking and Insurance (DOBI) before engaging in a digital asset business activity with, or on behalf of, a New Jersey resident.
Defining Digital Asset
Under the bill, a “digital asset” would be defined as a “representation of economic, proprietary, or access rights that is stored electronically and is distributed digitally through a ledger or data structure.” Digital consumer assets and virtual currency would be included.
“Through the issuance of licensing for businesses that choose to use blockchain technology, the state will be able to develop a 21st century economy and grow a new and exciting business sector while protecting New Jerseyans from the potential harm,” said Zwicker.
DOBI could issue a license to a person to participate in one or more of the following digital asset business activities:
- receiving a digital asset for transmission or transmitting a digital asset;
- storing, holding, or maintaining custody of a digital asset on behalf of others;
- buying and selling digital assets as a customer business;
- performing exchange services of digital assets as a customer business;
- issuing a digital asset; or
- borrowing or lending of customer digital assets.
Addressing Risk, Fluctuations
In discussing the pending legislation, all three lawmakers highlighted the risks of consumers using cryptocurrency, with Pou saying it was “imperative that we establish appropriate measures to effectively regulate this industry as we see more companies begin to shift towards offering cryptocurrency for purchase.”
Zwicker noted that cryptocurrency created unique and innovative opportunities, but the current lack of regulation left New Jersey residents with “no consumer protections in place.”
“The growth of the cryptocurrency industry is undeniable…However, in the same vein, the value of bitcoin fluctuated 19 times in 2021 reaching a high of $50,000 with a low of $5,000,” said Lopez.
On the federal level, Rep. Josh Gottheimer is leading the push in Washington to place definitions around stablecoins in order to avoid manipulation by bad actors that could collapse the result due to insufficient reserve capital.
Gottheimer is proposing to designate certain digital currencies as “qualified” stablecoins if they can be redeemed on a one-for-one basis for U.S. dollars. Qualified stablecoins could be issued either by an federally backed bank or a non-bank that agrees to maintain at least 100% reserve assets consisting of U.S. dollars, U.S. debt or any other assets the Office of the Comptroller of the Currency deems appropriate cash collateral.
“The expansion of cryptocurrency offers tremendous potential value for our economy. But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers,” said Gottheimer. “We shouldn’t stifle innovation in the cryptocurrency market. We should ensure the proper safeguards are in place, and ensure our nation is a leading force in financial technology.”