Coinbase, one of the top cryptocurrency platforms, has stopped offering its services in Hawaii. The Bitcoin wallet and exchange was announced at the end of last month following the implementation of new regulatory policies by the Hawaii Department of Financial Institutions (DFI).
In a statement posted on the platform, Coinbase blamed regulatory policies that made it impractical for the company to operate in the region. He goes on to explain the message from the Hawaii Department of Financial Services.
According to the statement, new regulations introduced by DFI in Hawaii require certain cryptocurrency services that meet the needs of Hawaii residents to apply and obtain licenses. In addition to licensing, the regulator went beyond by requiring wallet services and other Bitcoin platforms that hold customer funds to hold the equivalent of fiat deposits as well.
Coinbase states that the company is okay with the licensing portion and is willing to submit the necessary paperwork. However, I found the part about maintaining fiat currency reserves, which are equivalent to the total face value of cryptocurrency deposits, to be impractical, expensive and inefficient. For a company that manages massive amounts of Bitcoin, such a move could be a disaster.
Rather than submit to the unfavorable regulations, Coinbase decided not to cater to customers in Hawaii. It directed users to withdraw their balance from the platform and even suspend their accounts. In order to liquidate the balance, users will have to either sell the cryptocurrency for fiat currencies and transfer it to their bank accounts or send the bitcoin to another wallet.
Existing Coinbase customers from Hawaii were given thirty days, starting February 27, 2017, to withdraw the balance from their accounts. At the same time, the platform stopped accepting new registrations from users residing in the state.
It remains unclear whether the Financial Institutions Division will consider changes to the regulations. If they do, it could be some time before Coinbase and other companies that might follow in Coinbase’s footsteps resume operations in the state. Otherwise, Hawaii will end up replicating New York State’s BitLicense fiasco that led to many companies moving out of the state.
Reference: Coinbase | Image: BTC News