Will That Be Cash or Crypto? As prices of Bitcoin and other cryptocurrencies fluctuate wildly, legislatures move to attract digital money operators.

• Author: Morton, Heather
• Position: FINANCIAL SERVICES AND COMMERCE

Cryptocurrency is booming. Bitcoin prices reached new highs, surging nearly 600% since the beginning of 2020, trading around $41,000 in September. The price of Ethereum, the second-biggest cryptocurrency, rose from $186 in January 2020 to more than $3,900 in September 2021.

September was a memorable month for digital currencies. The nation's second-largest mortgage lender plans to accept payments in bitcoins. The U.S.

Treasury's Office of Foreign Assets Control announced the first sanctions against a Russia-based cryptocurrency exchange for its part in facilitating financial transactions for ransomware actors. And outside the U.S., El Salvador became the first country to accept Bitcoin as legal tender, while China's central bank declared cryptocurrency and related activities illegal.

State Actions

Even as cryptocurrency prices fluctuate, state lawmakers continue to introduce bills to authorize digital currencies, with measures under consideration in 31 states during 2021 legislative sessions, up from 20 states in 2020. Arkansas and Maine joined nine other states by enacting bills that define virtual currency under their money services or transmission statutes, while Delaware, Illinois, Indiana, Nevada and North Dakota added coverage for digital currencies under their unclaimed property acts, as did Colorado, Kentucky, Tennessee and Utah in previous years.

Since Wyoming enacted legislation in 2019 creating SPDIs, or special purpose depository institutions. to assist block-chain innovators and the growing use of digital currencies and other digital assets, 10 states have introduced bills to authorize banks to provide custodial services or create SPDI charters.

Using Wyoming's legislation as inspiration, Nebraska enacted the Nebraska Financial Innovation Act to authorize digital asset depositories to attract cryptocurrency operators. "My goal is to grow northeast Nebraska by helping to create high-wage, high-skill jobs," says Sen. Mike Flood (R), the bill's main sponsor. "This bill allows Nebraska to seize the opportunity to be at the front of the line when it comes to innovation in the new information economy."

In May, North Dakota required a study on the feasibility and desirability of regulating special purpose depository institutions and regulating other entities engaged in digital currency business activities.

Special Purpose

Depository Institutions

What are SPDIs and how are they different from traditional banks? While a traditional bank...