It's been a rough year for cryptocurrency, a decentralized digital payment system that uses encryption to verify transactions. The collapse of the FTX bulk exchange made international news and multiple other companies in the industry have recently failed. signature bankwhich focused heavily on cryptocurrencies, also flopped, and the price of major coins crashed earlier this month.
For many in the crypto industry, the recent criticism and negative press attention is well deserved.
โI am not going to defend the activity of criminals and scammers in this industry,โ said Caitlin Long, a big cryptocurrency supporter. "I've actually been very public, calling them out."
Long is a Wall Street veteran and current CEO of Custodia Bank. He got fully involved with technology a few years ago after trying to donate Bitcoin, the most popular cryptocurrency, to his alma mater, the University of Wyoming. He couldn't because of state laws, and then quickly found out that there was an opportunity for Wyoming.
โWe're not going to try to be on the coattails,โ Long said. "In fact, we can lead something here."
Since then, Long has been instrumental in making Wyoming one of the most crypto-friendly states in the country. In recent years, state legislators have passed a couple dozen laws trying to attract new cryptocurrency businesses to the windswept Cowboy State. including one this year which would authorize the state treasurer to issue its own digital currency.
Long said that cryptocurrencies have brought new people and jobs to Wyoming, which has struggled for years to diversify its economy beyond the energy industry.
"This is unbelievable. I see people coming from Denver, instead of our children going to Denver the other way around," he said.
Other Western states have also tried to stay ahead. Colorado was the first state to accept cryptocurrencies to pay taxesand a study classified nevada as the best state for cryptocurrency enthusiasts due to its friendly laws and the large number of employees in the sector.
But some experts wonder if states should try to attract cryptocurrency.
โThese crypto assets are not tied to the real economy at all,โ said Chris Odinet, a University of Iowa law professor. โThere are no merchants and business firms with consumer and commercial goods and supply chains behind them. So I think you have to ask, what is this really for?
At the center of this debate is the fight over whether cryptocurrencies should be part of banking. Wyoming is the first state to grant businesses the ability to house digital currencies alongside fiat currencies under one roof. Fiat currencies are backed by a government, rather than a physical commodity like gold or silver. This is called a Special Purpose Depository Institution (SPDI). Importantly, those crypto assets are backed by cash reserves, but Odinet said they still might not be a good idea.
โAllowing banks themselves, pre-existing banks, to provide crypto investment or crypto custody services is, in my opinion, a serious mistake,โ he said. "I think if the 2008 financial crisis taught us anything, it's that keeping bank banking simple is really a pillar of avoiding financial damage and the contagion that may follow."
Earlier this year, the Federal Reserve Board denied Long's Custodia Bank's charter application. They said the company's focus on crypto featured too many security and robustness risks. Long was not a supporter of that decision, and the litigation over how the Fed handled the Custody request earring.
โWeirdly, the Biden administration decided to set an example for the rest of the Custodian crypto industry,โ Long said. "If they really wanted to solve the cryptocurrency problem, frankly, they should look at the laws that the Wyoming legislature passed in their wisdom."
Meanwhile, Congress is trying to regulate digital assets. Young Wyoming Senator Cynthia Lummis has been called the โcrypto queenโ, and recently introduced the Responsible Financial Innovation Act with Sen. Kirsten Gillibrand (DN.Y).
โIt will take our existing financial regulatory structure and just put cryptocurrency assets on top of it,โ Lummis said during a recent press call.
The US Senate has yet to make a decision on the bill. For the self-described Odinet skeptics, there is a place for cryptocurrencies and especially its underlying technology, the blockchain, but in a more limited capacity.
โI understand and accept that banks will and should play a role in supporting crypto companies, but only as they do any other business venture,โ Odinet said.
In a recent letter Regarding Wyoming's cryptocurrency laws, Governor Mark Gordon exemplified both the nervousness and excitement he has regarding digital assets. Many state residents, including Bitcoin investors, are likely to tread carefully in the coming months as they weigh whether or not cryptocurrencies are a valuable asset to their community.
โFirst movers are not always rewarded. However, they are vital for progress,โ he said.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, O'Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, KUNM in New Mexico, supported by affiliate stations throughout the region. Funding for the Mountain West News Bureau comes in part from the Public Broadcasting Corporation.
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