Washington’s dragging its feet, so states are going full crypto
Good morning, and welcome to Protocol Fintech. This Friday: crypto states, Russia’s turnabout, and OpenSea’s sudden rise.
Off the chain
The cryptological is political. I digested that lesson in college, reading early issues of Wired that put cypherpunks on the cover. And there’s also nothing more political than money. So what does it mean that states and cities are rushing to embrace crypto while Washington dithers? No one really expects that people will start shelling out satoshi at Starbucks. But backing cryptocurrency sends a variety of signals — some far from those its creators intended. Read on for Ben Pimentel’s take on the latest action at the state level.— Owen Thomas (email | twitter)
Go west, young token
The debate over what to do with crypto is raging in Washington. But that’s not stopping a growing number of cities and states from embracing it.
It seems everybody wants to be on the map as Cryptoland, from New York City to Miami, whose mayors have recently competed on who can blow more of their paycheck on bitcoin. Recently, the bandwagon headed west with proposals to make crypto legal tender in Arizona, Wyoming and Texas.
How far these proposals will get through their statehouses is unclear. But even if they never pass, they’ve done the work of sending a message of crypto-friendliness to founders, investors and speculators riding the wave.
Crypto’s still hard to spend. Bitcoin, ether, solana and the rest are still widely seen as investment assets, not a way to buy coffee or pay your water bill. Some politicians want to change that.
- In Wyoming, which already has a high-profile crypto cheerleader in Sen. Cynthia Lummis, state Rep. Ocean Andrew wants to make it legal for residents to use any cryptocurrency to pay sales and use taxes.
- In Arizona, state Sen. Wendy Rogers wants to go beyond just taxes with a pitch to make bitcoin legal tender in the Grand Canyon State.
- Texas Republican gubernatorial candidate Don Huffines wants to do the same there. He’s going head-to-head in the primary with incumbent Gov. Greg Abbott, a crypto apostle who’s called his state a “leader” in the field and touted the arrival of cryptocurrency kiosks in HEB stores.
It’s more of a stunt than a “genuine shakeup,” Rohan Grey of the Digital Fiat Currency Institute told POLITICO, citing a key hurdle for the make-crypto-legal-tender movement: The U.S. Constitution restricts the power of states to issue their own money.
- Klaros co-founder and partner Michele Alt agreed, telling Protocol: “The idea of defining legal tender at state or local levels has been out of fashion since the Civil War!”
- Perhaps not coincidentally, some of those embracing crypto have a don’t-tread-on-me vibe that many find distasteful. Arizona’s Rogers has been criticized for celebrating Confederate generals.
- We’d love to hear Coinbase CEO Brian Armstrong’s thoughts on this. Remember how he said his company should stay out of politics, unless it touches on crypto? Turns out there’s no escaping politics.
- And then there are practical considerations for making crypto legal tender. Imagine the headaches for merchants. “Creditors would be required to accept bitcoin as settlement for a debt due, and they might be unable to convert it to dollars before its price drops significantly,” Stanford Graduate School of Business professor Darrell Duffie told Protocol.
Crypto first thrived on the Left Coast before it jumped to East Coast cities like New York and Miami. That makes its westward march with right-wing overtones disconcerting. Santa Clara University law professor Stephen Diamond told Protocol, “If bitcoin is to have any future, its advocates should distance themselves from this,” Diamond said.
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On the money
The Central Bank of Russia registered its first digital asset management company. After calling for a complete crypto ban just last month, the bank made a U-turn toward regulation to accommodate digital assets instead, bowing to the wishes of President Vladimir Putin and the country’s finance ministry.
On Protocol: INX’s Cathy Yoon argues that startups shouldn’t always wait for the SEC to bless their innovations.
A bill would allow tax exemptions for bitcoin transactions with gains below $200. The Virtual Currency Tax Fairness Act was introduced in the House as a bipartisan bill in an effort to remove requirements that would tax bitcoin gains regardless of size and purpose. A similar exemption exists for foreign currency gains.
Speaking of taxes, Coinbase users can now receive refunds in crypto. The crypto exchange announced yesterday that users who file with TurboTax can receive both state and federal income taxes in crypto via automatic conversions from fiat with no trading fees.
A kidnapper tried to get a $40 million ransom in bitcoin. Indian authorities arrested a police officer who plotted with his associates to kidnap a local crypto trader yesterday. The trader held a crypto wallet worth the amount asked for in the ransom.
Stocktwits is launching a crypto trading service with FTX. The social media platform for investors and traders partnered with the crypto exchange to capitalize on growing interest and expand its presence in digital currencies.
Musician John Legend launched OurSong, a social NFT app designed for entertainers and content creators. The app won’t require a separate crypto wallet, and NFT prices will be low. “I helped found OurSong because I believe NFTs can change the way creators are discovered, improve how they serve their biggest fans, and reshape the industry as a whole,” Legend said in a statement.
After hackers stole $80 million worth of cryptocurrencies from Qubit Finance’s users last Thursday, the DeFi platform offered $1 million as a bounty for the hackers to return the money — to no avail. “If you don’t come forward to claim the generous bounty and return the funds, you will face lasting consequences that vastly outweigh the benefits of holding onto funds that you can’t readily access,” the company tweeted yesterday.
India is going full steam ahead with its plans to issue a central bank digital currency in fiscal year 2022-2023. “The digital rupee will revolutionize the fintech sector by creating new opportunities and lessen the burden in handling, printing, logistics management of cash,” Indian Prime Minister Narendra Modi said in a meeting.
Founded in 2017, OpenSea didn’t do much volume in its early years. Then, NFTs took off. One firm that timed its rise particularly well was investor Andreessen Horowitz, which put in $100 million at a $1.5 billion valuation in July 2021, right before sales took off, and then invested again in January at a $13.3 billion valuation.
Thanks for reading — see you Monday!