Crypto Bank Removes NH App, Cites State Regulation
BlockFi Trust claims unclear New Hampshire banking regulations prevent it from opening a branch in Granite State, sources tell NHJournal.
BlockFi, headquartered in Jersey City, New Jersey, withdrew its request to open a new trust company from the New Hampshire Banking Commission file earlier this month. The company declined to answer questions about the application, first filed in April, and instead sent the NH Journal an unattributed statement:
“We welcome discussions with regulators and believe that proper regulation of this industry is key to its future success. As part of our engagement with regulators, BlockFi applied to the New Hampshire Banking Department for a license to open a new trust company. We recently withdrew this request and will revisit it at a later date once we resolve regulatory clarity in the space. “
New Hampshire Bank commissioner Gerald Little said he was not free to discuss an individual application, but said he was not aware of any New Hampshire regulations that have blocked BlockFi’s request.
“In conversations, we encouraged them to pass off,” Little said.
During this time, the company is under scrutiny because of its financial practices in its home state of New Jersey.
BlockFi is taking the heat from New Jersey regulators on its interest-bearing accounts. The New Jersey Securities Office issued a cease and desist order against the company in July, saying BlockFi’s accounts were not registered with that office or exempt from registration.
BlockFi offers BlockFi Interest Accounts, or BIA, with returns of 0.25% to 7.5%. The cease and desist order states that these accounts, which generated nearly $ 15 billion for BlockFi, are unregistered securities that are not guaranteed by the Securities Investor Protection Corporation (SIPC) or insured by the Federal Deposit Insurance Corporation (the FDIC).
“BIAs are subject to additional risk, compared to assets held with SIPC member brokers, or assets held in banks and savings associations, almost all of which are FDIC insured. They are also not registered with the Bureau or any other securities authority, nor exempt from registration. Despite the added risk and lack of guarantees and regulatory oversight, as of March 31, 2021, BlockFi held the equivalent of $ 14.7 billion from the sale of these unregistered securities in violation of securities law, ” indicates the cease and desist order.
In general, New Hampshire has few regulations when it comes to cryptocurrencies like Bitcoin, Dogecoin, Ethereum, and many other forms of digital currency.
“There are a lot of challenges when it comes to cryptocurrencies, there are so many cryptocurrencies out there,” Little said.
The State of New Hampshire is not involved in the exchange of cryptocurrencies between them. But that changes when they start trading cryptos for cash.
“The only time they get on our radar screen is if they marry cryptocurrency with fiat (paper) money,” he said.
BlockFi’s services include crypto trading, as well as setting up interest-bearing accounts, lending money, and credit cards. Since BlockFi offers a mix of crypto to crypto and crypto to fiat, it would be regulated like a bank in some ways and not regulated like a cryptocurrency in other ways. Little said any crypto bank would also be subject to all federal banking laws and anti-money laundering requirements, even if they did not fall under any state regulation.
State Representative Keith Ammon, R-New Boston, said BlockFi’s arrival in New Hampshire could be huge, if it happens, and the state needs to clarify its regulations to help service companies crypto financiers coming into the Granite State.
“If BlockFi was there, other crypto service companies would follow suit,” he said. “We have to play catch-up. “
Ammon said cryptocurrency is the future of finance and New Hampshire is going to lose out if it doesn’t act. The city of Miami recently unveiled its own cryptocurrency, MiamiCoin, which will help fund public works projects. New York mayoral candidate Eric Adams, who is expected to win his race, has said he wants to make New York a Bitcoin and crypto friendly city. The Central American nation of El Salvador recently adopted BitCoin as legal tender.
“It’s become a ton of capital, and it goes where it’s needed. There will be a competition to create an environment that attracts him. We shouldn’t be the last to do it, ”Ammon said.
New Hampshire was once at the center of Bitcoin and cryptocurrency, thanks in large part to the Free State Project. Libertarian activists like Ian Freeman helped make currency popular in the state. Freeman introduced Bitcoin to businesses in and around his home base in Keene, and he helped set up Bitcoin ATMs. Bitcoin is losing its outlaw chic as Freeman sees more and more big investors getting involved in cryptocurrencies.
“I think they can’t ignore it anymore,” Freeman said.
Freeman used to preach about BitCoin’s ability to undermine the government and hold the individual accountable. It was the best investment in the past 10 years, and banks and investors have taken notice, Freeman said. While BitCoin was once a way to protect government money and the financial system, according to Freeman, it is now going to be a big part of both.
“The institutional investor class, they are the ones who want to get closer to government,” Freeman said. “No one wants the government to smash its windows and doors at six in the morning. “
Freeman and five others were arrested by federal law enforcement during the March raids. They are all currently facing federal charges for wire fraud and money laundering. Federal investigators allege Freeman used his company to launder the proceeds of Internet scams, among other alleged crimes. Freeman and the others deny wrongdoing.
Ammon plans to introduce legislation to make it easier for legitimate crypto-financial companies like BlockFi to operate in New Hampshire. Past attempts to streamline crypto rules have failed in the House and Senate, in large part due to a generation gap, he said. This changes, hopefully, as currencies become more common.
“It was very difficult to try to explain it back then,” Ammon said. “But now it’s become a new market that competes with the stock market,” Ammon said.