California Gov. Gavin Newsom on Friday vetoed a bill that would have brought strong regulations to the crypto market which industry participants said would have stifled innovation in the state.
The bill had flown under the radar until it passed both houses of California’s legislature with near-unanimous support. If it had become law, the bill would have brought many regulations to the crypto industry that consumer advocates had long sought—including a requirement that trading platforms seek the best price when executing trades for customers. Such changes could have transformed the digital-asset market not just in California, but nationally, if firms modified their businesses to comply with the state’s law.
The bill also would have banned until 2028 certain kinds of “stablecoins,” whose values are pegged to a dollar, and likely required others—including those issued by Circle Internet Financial and Tether Holdings—to acquire California licenses to be offered on exchanges to state residents.
“It is premature to lock a licensing structure in statute” without considering an ongoing effort to research the crypto market and potential upcoming federal regulations, Newsom, a Democrat, wrote in a letter accompanying the veto. “A more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases, and is tailored with the proper tools to address trends and mitigate consumer harm.”
Newsom said in the letter he would work with the legislature on a new bill once federal regulations “come into sharper focus.”
The governor’s veto comes just a week after the White House released what it called the “first-ever comprehensive framework” for digital assets. Those reports mainly outlined areas of further study instead of making specific policy recommendations, but they did call on agencies including the Securities and Exchange Commission and the Commodity Futures Trading Commission to step up enforcement actions against bad actors in the industry, to the distress of some crypto supporters.
In California, a last-minute lobbying push by the industry—which argued the bill’s new licensing regime could push crypto firms out of the state—failed to stop it from passing the legislature.
Industry executives on Twitter hailed Newsom’s veto.
Newsom “sets a standard for getting it right, rather than getting it fast. The opportunity for harmonizing responsible digital asset innovation in the U.S., where innovation, inclusion and integrity are not trade offs needs political leadership,” wrote Circle Chief Strategy Officer Dante Disparte.
At the end of August, the bill passed the state senate 31-6 and the state assembly 71-0. While the legislature can override Newsom’s veto with two-thirds support from each house, in practice it has almost never taken that step.
Democratic Assembly member Tim Grayson, who authored the bill, in a statement said that he hopes to work with Newsom’s administration in the future on crypto regulations.
“The cryptocurrency market is under-regulated at best and deliberately rigged against everyday consumers at worst,” Grayson wrote. “A financial market cannot be considered healthy if there are no guardrails in place to protect consumers from scams and bad actors.”
Write to Joe Light at [email protected]