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America’s federal crypto laws are quite complex and strict. There are also state-level laws for digital assets, and they vary widely — some states reduce tax burden and over-regulation thus attracting investors, the others introduce a more harsh policy. However, mild local rules have some shortcomings, while strict regulation doesn’t necessarily mean it’s bad. Also, there is a trend for crypto rules liberalization in some of the states. Let’s explore how such regulatory diversity is possible within one country.
New York and Miami: States’ Crypto Competition
Before we consider crypto regulation in particular states, let’s see how two cities compete for leadership in the national crypto landscape. New York City, associated with financial power, seems to be losing ground in crypto: we will look at the case where a crypto company has left it for Miami, showing how state laws can attract investors.
When a crypto services company Blockchain.com was leaving NYC in 2021, their co-founder and CEO Peter Smith said: “New York is a great city, but Miami was an easy choice for us.”
As many could think, it’s not only about the climate. Miami is home to a thriving crypto community, it’s a gateway to Latin America, and it lines up well with the goals of the company. “It’s probably the most excited city in the world about crypto right now,” said the CEO of Blockchain.com.
Miami is fighting for the status of the crypto capital of the USA. It hosts dozens of conferences, and many educated professionals are based in the city. Many view digital assets as the future of finance — and if this is true, then the New York strict stance on crypto can question its status as the country’s financial capital.
Miami’s endeavor is well-supported by the city’s officials. Mayor Francis Suarez speaks at the crypto events and promotes Miami perks: it’s twice as cheap to live here than in New York, and taxes (not only for crypto) are reduced. Such American crypto giants as Bit Digital, eToro, and FTX US have already found homes in Miami. According to Suarez, the city has attracted assets under management worth $1.2 trillion in just 16 months.
The NYC Mayor Eric Adams doesn’t want to be left behind, though. The city has a state income for cryptocurrency which repels many businesses, but New York also boasts a thriving community of crypto professionals, while its strict laws protect investors. Adams and Suarez had a round of public debate in 2021 — and this should serve for the good of the industry: competition has always been a driver of growth.
Top 5 States Friendly Towards Crypto
Many US states are introducing mild crypto laws to attract workforce, capital, and to become wealthier. Let’s look at the most crypto-friendly states and see what they do to dominate in the national digital landscape.
1. California
One of California’s major advantages is its people — the state is home to thousands of enthusiasts from all over the world with good expertise in crypto. According to Bloomberg, San Francisco and Los Angeles were the cities where most crypto hires took place in 2021. Kraken and COINBASE enjoy their headquarters in California (the latter is to quit the state in favor of working remotely, though).
The Crypto Head reviews platform has called CA the most crypto-ready state, meaning that locals are the most active in searching cryptocurrencies on the internet, and Bitcoin ATM density is very high (over 2,400 machines).
2. Wyoming
Wyoming has got onto this list thanks to its mild crypto regulation — there are over 20 bills in the state facilitating operation with digital assets. They free cryptocurrency from the state income tax and exclude crypto from regular money circulation rules. A special banking charter adopted in Wyoming has allowed Kraken to establish here the first crypto bank in the USA.
3. Florida
We’ve already described how the enthusiasm of Miami’s Mayor Suarez helps promote the city in the crypto sphere. But in Florida, there is also support from the highest level — governor Ron DeSantis is just as keen on cryptocurrency and has suggested accepting some of the taxes in Bitcoin.
His other initiative is MiamiCoin (MIA) — a cryptocurrency issued by a local company CityCoins whose revenue is passed to the budget of Miami and to the city residents. As the crypto frenzy increased, Mayor Suarez even decided to receive his paycheck in digital coins.
Texas is among the states with the most favorable crypto regulation. A 2021 law gave legal status to cryptocurrency and allowed banks to offer custodial services for Bitcoiners.
One of the things that make Texas a popular crypto destination globally is its low electricity price, which is especially attractive for miners. In 2021, the state’s share in the Foundry USA Bitcoin mining pool was as high as 14%. As tax credits and other measures support miners in the state, concerns arise that the power grid of Texas will not handle the increased load after the Chinese miners’ exodus.
5. Colorado
After Colorado has created suitable conditions for the crypto business, digital assets have become popular in the state — you can even buy a house with Bitcoin here. Governor Jared Pollis announced in 2021 that Colorado will be the first state to start accepting taxes in crypto (he’ll have to compete for this with Florida’s Ron DeSantis).
Top 3 States with Strict Crypto Rules
1. New York
As mentioned above, New York City seems to be losing to Miami in terms of crypto dominance. NYC is burdened with state income taxes and strict crypto laws. Exchanges need a special BitLicense to start operating. Like in Florida, there is a local NewYork coin in NYC, but the state residents can’t even mine it due to legal restrictions.
However, the Mayor of New York Eric Adams acknowledges the problem and has the vision to change things. “The city that never sleeps is sleeping on crypto,” he says. As Adams addresses the legal side of the matter, real crypto activity runs in the city 24/7: the biggest conferences take place while Bloomberg marks a high rate of crypto hires in NYC. Adams’ call to “go big” on crypto may open a long-lasting competition between Miami and the Big Apple.
NFT advertising on Times Square, NYC.
Back in 2016, Hawaii State Legislature has adopted one of the oddest crypto laws — it obliged crypto exchanges to keep an amount of cash equivalent to the sum that their customers have purchased in crypto. This must have served as backing but turned out to be a huge obstacle, so many trading platforms fled the state.
In 2022, the situation may change — a new pilot program has been introduced that lifts this rule. As it has already shown a good result, the Hawaii Department of Commerce and Consumer Affairs is to introduce new laws that will promote crypto in the state.
3. Vermont
Vermont is one of the US states where the crypto industry is virtually absent. There is no workforce that could form a local “Silicon Valley” and no crypto laws that could facilitate this. According to the crypto-ready state ranking, there are few Bitcoin ATMs in Vermont, and locals are reluctant about cryptocurrency.
Pros or Cons?
Mild crypto regulation attracts capital and increases wealth, but it has its drawbacks. For instance, state tax benefits in Wyoming are lucrative for crypto businesses, but they also mean the local budget doesn’t profit from their operation. Also, soft legislation is fertile ground for scammers who make fraudulent products in an unregulated environment, harm users and the reputation of cryptocurrency.
On the contrary, strict laws boast some perks. We’ve already considered legal limitations for crypto in NYC, but they also ensure that investors are protected. If you work with a New York-based platform, you know that it has been thoroughly audited and improved upon request before launch.
The Future of the U.S. Crypto Legislation: Strict Federals vs. Mild States
Federal crypto laws are likely to become stricter in the United States. Such top officials as Treasury Secretary Janet Yellen, SEC Chair Gary Gensler, and others are very tough on digital assets.
An example of this stance is the “America COMPETES Act of 2022” — a bill that may severely expand the authority of the Treasury. The Act gives it the right to review crypto transactions and ban them without public notice if they were marked as affiliated with criminals or money laundering. The crypto community has called the bill a “disaster” that will harm the industry as Janet Yellen gets a “dictatorial-level power” over cryptocurrencies.
Another initiative is an executive order signed by President Biden on March 9. It asks the Securities and Exchange Commission, the Commodity Futures Trading Commission, and other authorities to review the risks and benefits of cryptocurrency and develop a regulatory framework for it as “a matter of national security.”
An opposite trend is the loosening of state-wide crypto laws. Arizona, California, and Texas want to make Bitcoin legal tender. Although this contradicts the US Constitution (a state can’t proclaim its own type of money), such bills are a significant precedent. Arizona wants to break free from the crypto tax burden and accept taxes in crypto in the meantime (the same as Colorado and Florida).
Arkansas, Kentucky, Michigan, North Dakota, and Wyoming have introduced bills that would establish favorable conditions for crypto businesses. Mississippi’s first law on cryptocurrency will define the status of digital assets and give banks the right to offer custodial services.
Final Word
Federal crypto laws are getting stricter in the USA, while state-wide legislation demonstrates an opposite trend. The laws are liberalizing, the governors are competing to attract professionals and investment. New York, Florida, California, and Colorado are the strongest local hubs that fight for the name of crypto capitals.
We will see how mild laws affect budgets and public sentiment. If states manage to profit from them, people will acknowledge this, and the local American crypto centers will continue to grow.
