The rise in popularity of the blockchain ecosystem and growth in ownership of digital currency (e.g., Bitcoin), non-fungible tokens (NFTs), digital wallets, and digital asset trading platforms have had a substantial impact on our financial system. The United States is a global leader with increased development and adoption of digital assets. The market capitalization of the entire cryptocurrency market has seen a dramatic rise to over $3 trillion, a compelling reason to consider implementation into the American financial system.
How Will President Biden’s and Governor Newsom’s Executive Orders Affect the NFT Marketplace?
California is on the leading edge with supporting responsible web3 technology to thrive. Recently, Gov. Newsom signed an executive order, which aims to create a pipeline of talent for the emerging industry and utilize the technology for public good. This aligns with the executive order that President Biden signed in March 2022 regarding the regulation of digital assets.
“Of the 800 blockchain businesses in North America, about a quarter of them are in California, dramatically more than any other state,” reported Dee Dee Myers, senior advisor to Newsom and director of the Governor’s Office of Business and Economic Development. “The order is designed to create a transparent and consistent business environment for companies operating in blockchain, including crypto assets and related financial technologies, which harmonizes federal and California laws, balances the benefits and risks to consumers, and incorporates California values, such as equity, inclusivity, and environmental protection.”
California’s guidelines are expected to follow those of other jurisdictions that have contended with the issue, resulting in a more rigorous application process.
In general, California has previously ruled that money transmission licenses are not required for many crypto-related activities. NFT issuers and companies involved in the development, marketing, and sale of NFTs anticipate that California, as well as the federal government, may adopt application, registration, and licensing requirements. This may be similar to existing laws enacted in other states such as the New York State BitLicense, which allows a company to conduct Virtual Currency Business Activity involving New York, but it does not replace any other licenses required under New York law.
Regulation of Digital Assets and NFTs
While both Executive Orders use the term ‘digital assets,’ they will have more influence on crypto markets. NFTs are not the same as cryptocurrency, however NFTs are nevertheless digital assets on the blockchain, and will be subject to state and federal regulations as well. The NFT ecosystem may not be immediately affected, yet the government’s interest in regulating the crypto and block chain asset market could significantly impact NFT prices across the board. The outcome of these Executive Orders remains to be seen as the variety of workstreams in progress under their direction are to be drafted and presented over the coming year.