SACRAMENTO—California is clamping down on cryptocurrency companies, introducing the Virtual Currency Act (AB 1123), which would require anyone involved in a “virtual currency business” in the state to first register with California’s Commissioner of Business Oversight.
The California Virtual Currency Act defines a “virtual currency business” as any business “maintaining full custody or control of virtual currency in this state on behalf of others.”
“This seems to suggest only businesses such as cryptocurrency exchanges or wallets that provide virtual currency accounts would need to register through this process. Nonetheless, the definition is very broad and encompasses ‘any type of digital unit that is used as a medium or exchange or a form of digitally stored value,’” Lexology reported.
However, Lexology explained there are carve-outs for certain stored value units including:
- Digital units that are used solely within online gaming platforms with no market or application outside of those gaming platforms
- Digital units that are used exclusively as part of a consumer affinity or rewards program
- Digital units that can be redeemed for goods, services, or for purchases with the issuer or other designated merchants, but cannot be converted into, or redeemed for, fiat currency
In addition, based on the current version of the Act, hedge funds would be excluded from the license requirement since they would own virtual currencies or related assets on their own balance sheets and not for the benefit of their investors, per se, Lexology said.
Finally, the Act excludes certain virtual currencies that regulators and/or consumers are already familiar with and that exist in a closed circle of value such as points that may be redeemed for rewards than for cash.