Despite the decline across the broader crypto market, this pending law could be a sign of brighter things to come.
- The website for the Louisiana House of Representatives shows that the Governor signed Bill 802 on June 15, 2022 and it will become law 10 days from that signing date.
- The intent of this new Pelican State legislation is to “allow financial institutions and trust companies to serve as custodians of digital assets; to provide for parameters and procedures; and to provide for related matters.”
During the past 24 hours, the cryptocurrency market lost $66.85 billion in value — marking an 8.52% decline — to a total valuation of $900.2 billion according to CoinMarketCap. Despite this most recent drop, coupled with the aggregated 55% loss of $1 trillion so far this year as the crypto bear market continues, that’s not stopping certain lawmakers from planning for the next crypto bull market.
Last week, Louisiana Governor John Bel Edwards signed Bill 802 — which will become law 10 days after his signing — allowing banks and other financial institutions to store cryptocurrencies such as Bitcoin on behalf of clients.
“A financial institution or trust company may provide its customers with virtual currency custody services if the financial institution or trust company has adequate protocols in place to effectively manage risks and comply with applicable laws. A financial institution or trust company may provide virtual currency custody services through third-party service providers. Prior to a financial institution or trust company offering virtual currency custody services, the financial institution or trust company shall carefully examine the risks involved in offering such services through a methodical self-assessment process,” an excerpt for the legislation reads.
Highlights of the pending Louisiana crypto bill
The bill has some other interesting provisions, the first would require banks to have ample insurance to cover and guarantee restoration of losses from hacks or cyberattacks. That type of offering is not available on the majority of cryptocurrency exchanges or digital wallets.
The legislation also would enable financial institutions to serve as a non-fiduciary or fiduciary custodian of the crypto assets. In the first instance, the bank or trust company would only hold the assets for safekeeping while the client retains the legal title and private keys necessary to trade the cryptos. In the second instance, acting as a fiduciary on behalf of the client, the bank or trust company would take control of both the crypto and private keys so the institution can actively trade and manage the portfolio on the client’s behalf as they would with stocks, bonds, exchange-traded funds, or mutual funds.
The pending Louisiana law is like a double-edged sword
This legislation is important because it’s looking toward the future when cryptocurrencies are more widely adopted by everyday users while helping hasten that adoption using familiar bank channels as onramps for new users. Additionally, this law could serve as a possible policy model for other states.
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However, while this pending law will likely help onboard new entrants into the crypto sector, the centralization of digital assets with banks and financial institutions will not sit well with crypto purists. Those individuals dogmatically believe in the underlying libertarian ideology of Bitcoin and crypto as alternatives to fiat currencies and financial intermediaries. The promise and premise of Bitcoin is that it was intended to be a peer-to-peer method of exchange, reliable unit of account, and superior store of value.
We’ll have to see, once enacted, if this legislation is more of a help or hindrance to the cryptocurrency sector.
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