The past year has presented considerable challenges for the cryptocurrency sector, a digital payment method operating without central authority and relying on cryptographic verification of transactions. The well-publicized downfall of the FTX exchange, alongside the failures of various other industry players, has shaken investor confidence. The closure of Signature Bank, a financial institution significantly involved with crypto, coupled with a recent dip in the value of prominent cryptocurrencies, have intensified concerns about the stability of the market.
Many within the crypto community acknowledge that the recent wave of criticism and negative headlines is, to some extent, justified.
Caitlin Long, a staunch advocate for crypto and CEO of Custodia Bank, stated, “I have no intention of defending the actions of criminals and those perpetrating scams within this industry. I have been vocal in condemning such activities.”
Long, a seasoned Wall Street professional, became deeply engaged with blockchain technology after encountering obstacles when attempting to donate Bitcoin, the leading cryptocurrency, to her alma mater, the University of Wyoming. This experience revealed a regulatory gap and a potential opportunity for the state.
“Our aim is not simply to follow the trend,” Long explained. “We believe we can be at the forefront and take a leading role in this field.”
Since then, Long has been a driving force in transforming Wyoming into a state supportive of cryptocurrency innovation. Over the last several years, Wyoming lawmakers have enacted numerous pieces of legislation designed to attract crypto-related businesses, including a recent measure that could allow the state treasurer to introduce its own digital currency.
Long emphasized that crypto has brought new residents and employment opportunities to Wyoming, which has long sought to diversify its economy beyond its traditional focus on the energy sector.
“It’s remarkable to see people relocating from places like Denver, reversing the previous trend of our young people leaving the state,” she noted.
Other states in the Western U.S. have also been proactive. Colorado took the lead by accepting cryptocurrency for tax payments. According to one study, Nevada was ranked highest as the most favorable state for crypto businesses, thanks to its laws and considerable workforce already in the sector.
However, some experts express reservations about states actively pursuing crypto businesses.
Chris Odinet, a law professor at the University of Iowa, questioned, “These crypto assets lack direct ties to the tangible economy. They aren’t underpinned by merchants, established businesses, and supply chains. Therefore, we must consider their true purpose.”
Central to the debate is the role of crypto in traditional banking. Wyoming has taken a pioneering step, allowing companies to manage both digital currencies and government-backed (fiat) currencies within a single institution. This arrangement, termed a Special Purpose Depository Institution (SPDI), requires that crypto assets be supported by cash reserves, a measure that, according to Odinet, may not be enough to mitigate risks.
“Permitting established banks to provide cryptocurrency investment or custody services is, in my view, a grave mistake,” he stated. “If the financial crisis of 2008 taught us anything, it’s that simplicity in banking is crucial for protecting against financial harm and the resulting contagion.”
Earlier in the year, the Federal Reserve Board rejected Custodia Bank’s application for membership, citing concerns about safety and stability due to the bank’s focus on crypto. Long voiced her disapproval of the decision, and legal action concerning the Fed’s handling of Custodia’s application is currently underway.
“Strangely, the current administration chose to use Custodia as an example for the wider crypto industry,” Long remarked. “If a genuine solution to crypto-related issues is desired, the focus should be on the laws wisely enacted by the Wyoming legislature.”
Meanwhile, efforts to regulate digital assets at the federal level are progressing in Congress. Senator Cynthia Lummis of Wyoming, sometimes referred to as the “Crypto Queen,” has introduced the Responsible Financial Innovation Act alongside Senator Kirsten Gillibrand (D-N.Y).
“The bill aims to integrate cryptocurrency assets within our existing financial regulatory framework,” Lummis stated during a recent press briefing.
The U.S. Senate has not yet voted on the bill. For skeptics like Odinet, cryptocurrency and its foundational technology, blockchain, can have a role, but with limits.
“I believe banks should support crypto companies, but should treat them just like any other normal business,” said Odinet.
In a recent statement regarding Wyoming’s crypto regulations, Governor Mark Gordon conveyed both optimism and caution regarding digital assets. Many Wyoming citizens, including Bitcoin investors, are watching closely and contemplating whether crypto is ultimately a worthwhile addition to the state’s economy.
“Early adopters don’t always reap immediate rewards, but their contribution is essential for progress,” he concluded.
This report was produced by the Mountain West News Bureau, a collaborative effort involving Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, the O’Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, and KUNM in New Mexico, with support from affiliated stations throughout the region. Funding for the Mountain West News Bureau is partially provided by the Corporation for Public Broadcasting.