Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
Fridays are typically reserved for news dumps, and last week’s may have been a historic opportunity, with Crypto Twitter catching its breath after Caroline Ellison’s staggering testimony and using its remaining energy to opine on geopolitical tragedies.
So when Gov. Gavin Newsom signed a crypto licensing bill into law after over a year of deliberation, it didn’t draw much attention. Regardless of the attention currently afforded to state digital asset oversight, the move does represent a major step forward for crypto regulation in the U.S.—and a potentially unwelcome one for the industry.
As I’ve written about many times in this newsletter and beyond, states have stepped up in the vacuum of digital asset supervision left by Congress. Chief among them is New York, whose BitLicense regulatory regime remains the only robust system in the country to grant crypto companies operating licenses. Despite criticism from the sector that it is laboriously slow, New York’s Department of Financial Services (DFS) has proved largely successful, especially in its approach to stablecoins, which members of the House Financial Services Committee have tried to implement nationwide. DFS head Adrienne Harris has even drawn begrudging respect in her enforcement actions.
Other states have taken their own approach to blockchain regulation—Wyoming has tried to corner crypto banking with its SPDI charters, for example—but New York remains the leader. It’s no surprise, then, that California’s new legislation has been deemed a West Coast version of the BitLicense, with the bill requiring the state’s Department of Financial Protection and Innovation to create a “robust regulatory framework,” including licensure and enforcement authority, for crypto activity beginning in July 2025.
According to Bloomberg Law, California is home to nearly a quarter of North America’s crypto companies, and Newsom has established himself as a wary blockchain booster. He picked a bad time to signal his support, signing an executive order to create a regulatory approach to crypto on May 4, 2022, a little over a week before the stunning disintegration of TerraUSD spurred the latest Crypto Winter. In September 2022, just before the collapse of FTX, he vetoed the first version of California’s BitLicense bill, arguing that it was “premature.”
Newsom’s decision to come back to the table reflects a thawing of public sentiment toward crypto, and likely at least some envy regarding New York’s success in navigating the rocky landscape, alongside Harris’s growing national profile.
At least one crypto policy group voiced its disapproval. In a statement shared with Fortune, Crypto Council for Innovation CEO Sheila Warren described the bill as a “step forward,” but warned that it could “pigeonhole a wide range of activities and create a drag on innovation.”
The specific criticism was more esoteric. The advocacy group worked with lawmakers on the legislation but voiced discontent over specific definitions in the bill that it described as overly broad and imprecise, such as “control” and “executive officer,” expressing optimism for further legislation.
With Congress continuing to drag its feet—a dynamic that will no doubt be exacerbated by the chaos in House leadership and myriad other legislative priorities, from foreign aid to funding the government—California’s bill represents the new status quo for crypto legislation. It will be fractured and piecemeal, and still offer no relief to companies hoping to get some clarification on the roles of federal agencies.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
