Coinbase Pulls Out of Hawaii
One of the world’s largest bitcoin exchanges announced today that it would be closing accounts of customers in Hawaii due to state regulatory policies that “will render continued Coinbase operations in Hawaii impractical.”
The announcement comes despite recent movement in the Hawaii state legislature to study the uses of and determine best practices regarding blockchain technology.
In an email sent this morning to customers titled, “Urgent Notice to Coinbase Hawaii Customers,” the company wrote:
“Although we strive to provide continuous access to Coinbase services, we regret to inform you that Coinbase is indefinitely suspending services in Hawaii. The Hawaii Division of Financial Institutions has recently communicated regulatory policies which will render continued Coinbase operations in Hawaii impractical. We understand this suspension will inconvenience our Hawaii customers and we apologize that we cannot currently project if or when our services may be restored.”
The email pointed to a longer write-up on the Coinbase support site which explained further:
“We understand that the Hawaii DFI will require licensure of entities which offer certain virtual currency services to Hawaii residents. Although Coinbase has no objection to this policy decision, we understand the Hawaii DFI has further determined that licensees who hold virtual currency on behalf of customers must maintain redundant fiat currency reserves in an amount equal to the aggregate face value of all digital currency funds held on behalf of customers. Although Coinbase securely maintains 100% of all customer funds on behalf of our customers, it is impractical, costly, and inefficient for us to establish a redundant reserve of fiat currency over and above customer digital currency secured on our platform.”
Also this morning, Coinbase legal representative Juan Suarez penned an article on Medium that put the companies position more plainly. Titled “How Bad Policy Harms Coinbase Customers in Hawaii,” Suarez noted that Hawaii stands apart from nearly every other U.S. state.
“This policy is obviously untenable,” he writes. “No digital currency business — and frankly, no commercially viable business anywhere — has the capital to supplement every customer bitcoin with redundant dollar collateral.”
Even though Suarez says the state’s policy provides no practical protections to Hawaii consumers, it has forced Coinbase to close the accounts of Hawaii customers and to prevent people in Hawaii to open new accounts, leaving them with “no good options.”
“Hawaii customers wishing to hold onto their digital currency will need to send their funds to another wallet service and we cannot recommend any service which meets Coinbase’s security standards and which is licensed to operate in Hawaii,” Suarez wrote.
Suarez does see a glimmer of hope in the Hawaii state house bill that would create a “digital currency and blockchain working group,” and adds that Coinbase hopes to convince the department commissioner to revisit the policy and work with policymakers to change the law.
“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,” Suarez concludes.