In late April, over a hundred people gathered near the Texas Capitol building to protest. Peaceful protests in the United States are not uncommon, but
In late April, over a hundred people gathered near the Texas Capitol building to protest.
Peaceful protests in the United States are not uncommon, but what made this one unique was that its participants were gathered to advocate for the right to own and use cryptocurrencies.
The location is also puzzling, as the Lone Star State has been presenting itself as a potential hub for the crypto industry in the United States, with varying state and federal laws creating an uneven regulatory landscape.
‘Digital Freedom rally’ to oppose Senate Bill 1751 in Texas State Capitol #Bitcoin $BTC pic.twitter.com/lwAzAbSnY0
— Cointelegraph (@Cointelegraph) April 25, 2023
And so, the crypto enthusiasts gathered together in Austin to protest Senate Bill 1751, which will strip cryptocurrency mining operators of some existing tax incentives. The bill has already passed in the State Senate and has proceeded to the Texas House of Representatives.
Texas doesn’t fit the binary narrative of crawling into a “crypto-hostile” mode. While its legislators want to strip crypto miners of tax incentives, they almost simultaneously vote for the right of individuals to possess crypto be included in the state’s Bill of Rights.
How did such peculiar legislative moves come about, and what does it mean for the industry?
The pioneer’s path to regulation
Almost 10 years ago, Texas became the first state to address Bitcoin (BTC) regulation when the Texas Banking Commissioner issued a memo proclaiming that the original cryptocurrency “is best viewed like a speculative investment,” not as money.
It was good news for the early adopters, as they were spared from the interest of regulators. From then on, Texas began to attract local and global crypto businesses.
In 2021, the Texas Department of Banking declared that local banks are allowed to store cryptocurrencies for their clients. A month later, the state legislature amended the local Uniform Commercial Code to recognize cryptocurrencies under commercial law. Another bill established a blockchain working group in the state.
However, when Texas made it into Cointelegraph’s list of the top five states for crypto, it was more due to its unique crypto mining conditions than its regulatory efforts.
Energy prices for industrial clients were among the lowest in the country — or in the opinion of mining company Layer1 Technologies then CEO Alex Liegl — in the world.
Following China’s crackdown on crypto mining in 2021, the U.S. state was enjoying the interest of large miners worldwide. Governor Greg Abbot expressed his excitement about Texas becoming the next “crypto leader,” with local communities welcoming new businesses, reopening industrial spaces and hiring people in small towns.
The trend continued into 2022, with mining behemoths like Riot Blockchain relocating rigs to Texas. Even the record-breaking heat waves in the summer and deadly winter storms didn’t turn off mining operators, which accepted some periods of unplanned stoppages.
The Texas Comptroller’s office even tried to clarify that cryptocurrency mining facilities “do not place big electrical demands on the grid.” The same words have been repeated by Senator Ted Cruz, who expressed his hope to make Texas an “oasis for Bitcoin.”
Hot season for lawmaking initiatives
However, despite friendly overtures to the crypto industry, Texan authorities have never shied away from enforcement action.
The state’s principal financial regulator, the Texas State Securities Board (TSSB), has a long history of interacting with the market.
It accused Bitconnect of illegal securities trading, along with 31 other companies to follow, and pushed Arise Bank — a self-described “first ever decentralized banking platform” — out of the state for using the word “bank.”
In 2022, the TSSB actively participated in enforcement action against collapsed crypto exchange FTX, pushing charges against co-founder Sam Bankman-Fried, scrutinizing “finfluencers” who advertised the platform, and objecting to the potential sale of Voyager Digital to FTX even before the latter’s bankruptcy.
Texas also had its fair share of controversy in attempts to regulate crypto. In 2019, local lawmakers introduced a bill requiring users to identify themselves when using digital currencies. However, the bill never made it past the first reading.
But only in 2023 did the real, even anomalous, appetite for regulation arise among Texan lawmakers.
House Bill 1666, which was introduced in January by a group of lawmakers led by Representative Giovanni Capriglione, proposed to amend Section 160 of the Texas Finance Code, restricting large digital asset providers — with 500+ customers and at least $10 million of funds — from comingling the customer funds with any other type of operational capital. The bill reached Senate approval in three and a half months and was sent to the Governor’s office in May.
In early March, Representative Cody Harris…
cointelegraph.com