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California’s crypto bill: much still needs to be done

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California has now passed Assembly Bill 39, which has broad implications for the crypto industry and the outlook for innovation in the world’s 5th largest economy.

This legislative session saw meaningful steps to refine the bill, including clearer terms for licensees, broadened exemptions, tapered disclosures, extended implementation deadlines, narrowed burdensome compliance recommendations, and harmonized state standards, among others.

The California state worked with the Crypto  Council for Innovation to advance these and other significant changes. Yet AB 39 has several unresolved and important issues as well.

What was not addressed by California’s crypto bill?

Definitions like “digital financial asset business activity,” “control,” and “executive officer” remain problematic. Overly broad and imprecise definitions could lead to operational challenges, and could pigeonhole a wide range of activity, tech and individuals.

This ambiguity could erroneously cover smart contracts, storage providers, and Web3 gaming – a $10 billion industry with almost a million daily users. Placing these under a banking-like regime could mean job cuts, businesses exiting California, plus blockers for Californians seeking to access top-tier tech.

The lack of specific timelines and written notices before exams would set back California state licensees in a competitive market. Each of these has the potential to add significant drag to innovation and stall GTM.

Lastly, limited exemptions for budding digital asset ventures threaten CA’s innovation edge.

The bill’s current exemptions for smaller digital asset businesses, such as early-stage startups, may not be sufficient to keep California ahead in the global market, let alone maintain the state’s competitiveness.

On the other hand, it was good to see a rollback of the blanket ban on algorithmic stablecoins. If that had gone forward, it would have severely disrupted financial markets while chilling innovation.

Moving forward

California needs to address these urgent issues, especially through further legislation. CCI stands ready to continue working closely with the legislature and the administration on these important topics.

The state has always been an innovation leader. As one of the five biggest economies in the world, it must balance robust consumer protections with responsible digital asset innovation to remain competitive.

While this bill marks a key step towards these goals, it cannot be the last if California is to remain at the forefront of innovation in digital assets and Web3.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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