RICHMOND — Virginia cryptocurrency investors hope lawmakers will consider regulatory policies for the digital asset industry in the 2023 General Assembly, saying a framework is needed with the increasing number of investors and recent market volatility.
Cryptocurrency exchange FTX filed for bankruptcy on Nov. 11. It was one of the largest cryptocurrency exchanges, valued at $32 billion in January. FTX founder Sam Bankman-Fried released a statement on Twitter, saying he was “shocked to see things unravel the way they did.”
The company did not have enough emergency reserves to float the “bank run” of customer withdrawals, which led to bankruptcy, according to a statement released by Rep. Stephen F. Lynch, D-Massachusetts. Lynch is the chairman of the Task Force on Financial Technology.
At least $1 billion of FTX customer assets “are currently missing,” according to the release, though multiple reports include the total could be much higher.
FTX was headquartered offshore, and Lynch pointed to the need for “thoughtful regulation” to protect U.S. investors and maintain stability in the digital assets industry.
Only a few Virginia bills related to cryptocurrency have been previously introduced. Del. Glenn Davis, R-Virginia Beach, introduced House Joint Resolution 153 in 2018. The measure would have created a one-year subcommittee of 13 members — legislative and nonlegislative members — to study the potential implementation of blockchain technology in things such as government record keeping, delivery services and information storage, and also to study how blockchain technology could stimulate growth in Virginia’s information technology industry.
Del. Karrie Delaney, D-Fairfax, introduced a bill this year to create a two-year, 20-member subcommittee to identify opportunities and establish a potential regulatory framework for cryptocurrency and blockchain technologies.
The Virginia Blockchain Council is a tax exempt trade organization based in Central Virginia. Its mission is to build community through education and blockchain-based web technologies, according to its website. The organization was founded in 2017 by executive director Greg Leffel, and has approximately 1,600 members, he said.
Cryptocurrency trade groups organized in response to the rise of investors, according to Leffel. He said he would like to see the General Assembly tackle sandbox regulation.
Sandbox regulation ultimately provides more consumer protections. It improves business models in an isolated software environment such as cryptocurrency, according to the Financial Conduct Authority, or FCA. The FCA regulates financial services firms and financial markets in the U.K.
Policy such as sandbox regulation helps companies innovate but with oversight. It can build cooperation between the regulator and the companies, according to FCA.
At least 20 other states including Maryland have passed blockchain technology legislation. Some states, including Nevada, Arizona and Utah, have established sandbox regulation. It is the newest policy being discussed at state level, Leffel said.
Two bills were introduced in the past General Assembly session to create a Department of Regulatory Innovation that would oversee a “Virginia Regulatory Sandbox Program.” The bills did not advance to the legislative floor, although a health care sandbox regulatory agency proposed by Davis made it through the House. Davis did not respond to multiple interview requests by phone or email.
The main purpose of sandbox regulation, Leffel said, is to let other companies and markets know Virginia is “open for business.”
“It’s a signal that we’re willing to support its [cryptocurrency] place in the marketplace,” Leffel said.
Cryptocurrency security is important, according to Leffel. The protection of the average investor is what matters most — knowing what the product is, and what they’re actually investing in, Leffel said.
“People need to understand that there are scammers, like the chance of rug pull,” Leffel said.
Rug pull is a cryptocurrency scam where people or companies hype up the value of the product to attract investors and obtain their digital coins before shuttering, according to Leffel. “We want to make sure that there’s a framework there that protects [investors],” Leffel said. “I’m also a huge advocate for seeing how this technology is going to impact everyday life.”
The Virginia Blockchain Council partnered with the Virginia Commonwealth University Blockchain club last year, according to Leffel. The VCU Blockchain club is not student-exclusive, according to club president Francesca Bercasio. Bercasio is a senior seeking a finance technology degree.
“I chose to join because I believe this technology will disrupt so much due to the features it has,” Bercasio said. “Also I think the culture the club promotes is inclusive; I’ve always felt seen and heard.”
Cryptocurrency will impact technologies such as engineering, marketplaces and even art curation that rely specifically on third parties, Bercasio said
“For example, financial transactions are now settled in minutes, rather than days,” Bercasio said.
VCU Blockchain plans to expand, and connect with more people off campus, according to Bercasio. She hopes the university will consider teaching blockchain to increase literacy.
“We want to encourage VCU to add a cryptocurrency curriculum,” Bercasio said. “And instituting a program either in lectures or through the da Vinci Center at VCU.”
The da Vinci Center for Innovation at VCU is an academic workshop space which promotes innovation and entrepreneurship through cross-disciplinary collaboration.
Richmond local and VCU Blockchain member Dave Benz joined VCU Blockchain in 2021, he said. Benz joined because he was interested in cryptocurrency for “quite awhile.”
Benz has learned many things from his VCU Blockchain members, and is grateful that they are accommodating to his lack of knowledge on the new technology, he said.
“They’re very knowledgeable and up-to-date folks,” Benz said. “I always learn something new when I go [to meetings].”
Benz said he is the oldest member in VCU Blockchain by decades, but is grateful for how accepting everyone is.
“Everybody has been very friendly, and helpful with my lack of understanding on certain things,” Benz said. “They’re also willing to listen to my thoughts and ideas which is great.”
Virginia resident and college student Johnnie Walker III invests in cryptocurrency as a “safety net,” although he said he does not have other investments.
“Slowly investing throughout the years and into the future will set me up at a certain point when I don’t want to work anymore,” Walker said. “If something were to come up, I have that money.”
Walker began investing in cryptocurrency during his junior year of high school in 2017, he said.
“I kind of just ride the waves of highs and lows in the market,” Walker said. “I have made a comfortable amount; it’s been good.”
Walker wants to see more preventative and security policy around cryptocurrency investing. He anticipates cryptocurrency “taking off” in the future, Walker said.
“I feel comfortable as an investor as long as they continue to develop it,” Walker said. “It would make me lean more towards putting my assets into crypto rather than banks.”
Capital News Service is a program of Virginia Commonwealth University’s Robertson School of Media and Culture. Students in the program provide state government coverage for a variety of media outlets in Virginia.