![]() ![]() As my curiosity was piqued, I decided to dig into American CryptoFed and found a Securities and Exchange Commission (SEC) Order Instituting Proceedings (OIP) from last November. ![]() What I view as a publicity stunt, proponents consider the beginning of the end for the U.S. ‘It’s the beginning of the end,’ for central banking and the U.S. “If the Wyoming proposal succeeds, its real significance would be to help legitimize cryptocurrencies as alternatives to the greenback. The article notes that one of the groups backing the Wyoming proposal is American CryptoFed, and quotes one of the group’s founders, Zhou Xiomeng: “We are looking for alternative currencies to compete with the U.S. Wyoming is destined for the same experience as Ohio if their crypto tax bill becomes law – especially considering the bill only permits virtual currency sales tax payments “so long as the same virtual currency was used for the sale that gave rise to the sales tax.” This is why I was so perplexed by some quotes in a recent Politico article that highlights the Wyoming bill and a similar effort in Arizona. Ohio ended their experiment within a year, after accepting less than ten tax payments from the payment processor. ![]() state to accept bitcoin for tax payments (technically, the state contracted with a payment processor that converted bitcoin to dollars). Ohio found this out the hard way in 2018, when they became the first U.S. government, for a cryptocurrency with questionable backing that is awkward to use?” The reality is that cryptocurrency is far too volatile to be used as a medium of exchange why would you spend something that goes up by 20% in a day, and conversely, why would you accept payment in something that goes down by 20% in a day. As economist Barry Eichengreen points out, why would you trade “a perfectly liquid dollar, supported by the full faith and credit of the U.S. The problem with this argument is that we have options. The logic goes that because all citizens must pay taxes, and thus share a common creditor, anything the government accepts to discharge tax obligations will freely circulate as currency within the community. Ocean Andrew proposed a bill that would allow “for the payment of state and local sales and use taxes in virtual currency,” and the “filing of state and local sales and use tax returns through the operation of a smart contract.” Many crypto proponents have long sought the ability to pay taxes in crypto due to the belief that this would accelerate crypto’s use as a medium of exchange. While Wyoming SPDIs await a decision on their master account application, the state legislature and their crypto backers have continued their push to make Wyoming the “ Delaware of digital asset law.” Last month, state Rep. Federal Reserve chairman Jerome Powell recognizes these risks, which is why at his confirmation hearing last month he acknowledged the “ hugely precedential” nature of the decision and noted that if “ we start granting these, there will be a couple hundred of them pretty quickly and we have to think about the broader safety and soundness implications.” In short, granting master accounts to Wyoming SPDIs would open the door for crypto to enter the banking system and expose interbank payments systems to the numerous operational risks crypto presents, with no government entity overseeing SPDIs besides the Wyoming Division of Banking. This means that commercial entities, like crypto exchange Kraken, can own a SPDI without being subject to parent company supervision, which violates the long standing policy of keeping banking and commerce separate. Because SPDIs lack Federal Deposit Insurance Corporation insurance, they do not meet the definition of “bank” under the Bank Holding Company Act, and therefore would not be subject to consolidated Federal Reserve Supervision. ![]() Despite it being well over a year since the first SPDI charter was granted, the Kansas City Fed has yet to approve a master account application for any SDPI, and for good reason. A master account would grant SPDIs access to the Federal Reserve’s payment systems and reduce the current frictions and fees associated with crypto to fiat conversion, and vice versa. Most notably, the state created an entirely new type of bank charter – the Special Purpose Depository Institution (SPDI) charter – to assist “ blockchain innovators” in accessing “secure and reliable banking services.” While the state has approved four SPDI charters thus far, the SPDI business model only works if charter recipients are able to obtain a Federal Reserve master account. Last April, I wrote about Wyoming’s ongoing effort to roll out the red carpet for cryptocurrency firms by passing a number of bills favorable to the sector. ![]()
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