Leading cryptocurrency exchange Coinbase has announced that it will stop its services to the customers based in Hawaii due to the requirements of a new policy imposed by the Hawaii Division of Financial Institutions (DFI).
Coinbase clarified that it has no objection to the DFI’s requirement of digital currency businesses to be licensed under the state’s Money Transmission Act. However, last September the DFI informed the company that digital currency businesses will be required to maintain cash reserves (or similar, liquid assets referred to as “permissible investments”) in an amount equal to the aggregate face value of digital currency funds held on behalf of customers.
This means that for every bitcoin that Coinbase holds for a Hawaii customer, the firm is also required to hold the equivalent cash value of that bitcoin (nearly $1200 currently) as redundant collateral.
“This policy is obviously untenable. No digital currency business — and frankly, no commercially viable business anywhere — has the capital to supplement every customer bitcoin with redundant dollar collateral”, Coinbase added. “DFI’s dollar-collateral policy does nothing to protect customer funds. To the contrary, compliance with this policy would siphon millions of dollars away from critical operations, recruitment and retention of expert staff, and constant reinvestment in the business necessary to guarantee the security of customer digital currency. We cannot accept this tradeoff.”
With this announcement, Coinbase has asked all Hawaii-resident customers to close their accounts within the next thirty days. It said that it will implement controls to prevent Hawaii residents from establishing Coinbase accounts for the indefinite future.
In concluding remarks, the company said that it remains hopeful to work with policymakers to either change the law or to encourage the DFI commissioner to revisit her existing policy discretion under Hawaii law, adding:
“We are heartened that members of the Hawaii State House of Representatives have recently introduced a bill that would create a digital currency and blockchain working group. We look forward to working with them, the DFI, and others to help Hawaii join nearly every other State in the Union by adopting policies that will make it practicable to operate a successful digital currency businesses in Hawaii and we hope to be back in Hawaii sometime soon.”
