California, home to a significant portion of the United States’ blockchain companies, has followed in the footsteps of New York by signing its cryptocurrency regulation bill, often likened to the controversial BitLicense. Signed by California Governor Gavin Newsom last week, the Digital Financial Assets Law is set to take effect from July 2025 to establish a robust regulatory framework for the state’s crypto industry. Notably, the bill has drawn mixed reactions from industry players.
California Governor signs new crypto law
The regulation is also reminiscent of the response to New York’s BitLicense in 2015, which was met with significant opposition. Major crypto brands like Kraken, Bitfinex, and LocalBitcoins chose to exit the state, while even Coinbase criticized the bill for duplicating federal anti-money laundering (AML) requirements. However, it remains to be seen if California’s version of the BitLicense will fare any differently. Coinbase’s Chief Legal Officer, Paul Grewal, has expressed cautious optimism, stating that he is “encouraged” by the bill’s progress.
Nevertheless, concerns have arisen due to the ambiguous wording of the bill, particularly given that California is home to a quarter of the country’s blockchain firms. As it stands, the bill would effectively prohibit individuals from engaging in digital financial asset business activities unless they meet specific criteria and are licensed by the Department of Financial Protection and Innovation. Experts in the field have noted that the current wording of the bill is not entirely clear, and there is a fear that it may inadvertently restrict unrelated activities.
Peter Herzog, Associate Director of Government Affairs at the Crypto Council for Innovation, highlighted the potential requirement for decentralized systems to obtain licenses merely because their smart contracts have emergency pause functionality. Additionally, there is uncertainty about whether non-fungible tokens (NFTs) will be included in the regulations and what the fate of non-fiat stablecoins will be. In response to these concerns, Governor Gavin Newsom, who had previously vetoed a blockchain bill with a similar proposal, emphasized that the bill would require further refinement due to its ambiguities.
Industry reaction and the path forward for crypto in the state
Paul Grewal, Coinbase’s Chief Legal Officer, expressed concern about these ambiguities but noted that they were encouraged by Newsom’s acknowledgment of the issue. Despite these uncertainties, Coinbase confirmed in an email to Decrypt that it has no plans to exit the state. Kraken, a San Francisco-based crypto exchange, has adopted a more measured approach compared to its reaction to New York’s BitLicense. Kraken stated its commitment to working with California lawmakers and the Department of Financial Protection and Innovation to ensure that high-quality services for its California clients continue.
Consensys, a blockchain and software company with a significant presence in California, is also closely monitoring the bill. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys acknowledged that financial legislation often tends to be ambiguous. He stressed the importance of industry participants engaging with the regulator to help shape the legislation, emphasizing the need for clarity and the understanding of industry risks. Peter Herzog from the Crypto Council added that while there’s work to be done to refine the legislation, they appreciate Governor Newsom’s recognition of the need to narrow the statute’s scope and increase clarity for future licensees through additional legislation.
California’s Digital Financial Assets Law, akin to New York’s BitLicense, has sparked a mix of hope and concern within the cryptocurrency industry. The bill’s vague language and potential impact on a thriving crypto ecosystem are subjects of apprehension, but industry leaders are engaging with regulators to ensure the bill is shaped sensibly and does not inadvertently stifle innovation. The outcome of California’s foray into cryptocurrency regulation will likely have significant implications for the broader industry.