Florida Chief Financial Officer Jimmy Patronis released a proposal to regulate cryptocurrencies like Bitcoin in Florida last week.
The plan called for the creation of a new position in Florida government, a cryptocurrency chief, who would help alert consumers to shady actors and oversee the regulation of Florida-based coins.
“We cannot allow the cryptocurrency industry to expand in Florida unfettered and unchecked with the potential for so many, including our large population of seniors, to be exploited,” Patronis, a Republican, said in an official release June 26.
Cryptocurrencies, decentralized online currencies that derive their value from public confidence and their ability to be exchanged quickly, transparently and securely, form an industry worth hundreds of billions of dollars. Florida-based companies have created several coins in recent years.
But in part because few understand the blockchain technology behind the coins, scams are not uncommon. A typical cryptocurrency “pump and dump” scheme involves investors hyping up a given currency based on false information, then selling their assets once the coin’s price becomes irrationally inflated. Shady companies can also use initial coin offerings, or ICOs, to swindle investors in a similar way.
Former state Senator Jeremy Ring, Patronis’ Democratic opponent, said he doubts Patronis’ plan will stop bad actors from perpetrating such scams.
“It seems like a campaign stunt,” Ring, a former tech executive, said of Patronis’ plan. “It’s not a market that can be regulated from Florida.”
Katie Strickland, a Patronis campaign spokeswoman, accused Ring of not wanting cryptocurrency regulations because of Ring’s personal investments in the space.
Politics aside, combatting bad actors can be difficult for regulators because of the nature of the currencies. Consumers all over the world have access to coins no matter where they originate. Even if scammers victimize a Floridian, the state may have a tough time holding them accountable.
Bernard Parenteau, a computer science professor at Florida Institute of Technology who teaches a class on cryptocurrencies, said it’s unclear what role a state can play in stopping cryptocurrency fraud.
“State legislation is more to do with state money transmitter acts and state securities regulations,” Parenteau said, noting cryptocurrency fraud investigations usually fall to the federal Securities and Exchange Commission. (Ring, for his part, said any state fraud investigations should come out of the office of the attorney general.)
Regulating famously volatile cryptocurrency securities markets is another plank of Patronis’ plan. The CFO wants new rules to be made by the cryptocurrency chief and officials from the state offices of financial regulation and insurance regulation.
But Ring argued that too much regulation could be dangerous for the burgeoning industry, and that the free market should determine cryptocurrency winners and losers
“I think it’s going through a process that may take a few more years where what will come out of it will be legitimate companies,” Ring said.