Larry Sharpe Discusses New York’s Crypto Regulatory Environment

On September 13th, New Yorkers headed to the polls to place their vote in this year’s primary election. In many ways, the primary will prove to be more important than the general election on November 6th, given the state’s heavy democratic tilt. Despite the uphill nature of challenging the Democratic Party in New York, Larry Sharpe, the Libertarian candidate for Governor of New York, is set on challenging the status quo and examining the myriad issues facing New York with a fresh perspective.

Sharpe spoke to the Crypto NYC community on September 12th. He outlined his vision for a more decentralized and less onerous regulatory environment for New York State, which he believes will help grow not only the crypto industry, but other emerging industries as well.

While the Libertarian party has long operated on the fringe of American political discourse, there are encouraging signs that widespread voter dissatisfaction with the two mainstream parties may be leading to a resurgence of interest in the party. Voters are searching for unique solutions to our nation’s political problems, including intractable gridlock.

Gary Johnson’s 2016 Presidential run showed promise in breaking through, polling at times in the high single digits. Johnson was ultimately undone by a series of gaffes, as well as the unique dynamics of the 2016 election, where many voters were lodging protest votes against Trump or Clinton, rather than voting for their preferred candidate.

Sharpe began his presentation with a discussion of New York’s current regulatory regime centered around the birth and role of the BitLicense in New York and its impact on the crypto industry. While the BitLicense has provided mainstream legitimacy to license holders and the pace of issuance has quickened over the last six months, Sharpe sees the BitLicense as an example of the overzealous overreach of the regulatory and administrative state that hurts competition and consumer choice.

Sharpe also examined how regulatory structures such as the BitLicense are ultimately used to protect entrenched incumbents, even in relatively new industries. The BitLicense initiative was initially spearheaded by Benjamin Lawsky, who was the head of the New York Department of Financial Services (NYDFS.) Lawsky left the NYDFS shortly after the BitLicense was created, which slowed effective implementation of the license. In late 2017, Lawsky found himself on the board of Ripple.

Sharpe proposes eliminating the BitLicense regime and replacing it with a three-tiered regulatory regime. Sharpe noted that since the BitLicense program was issued by the NYDFS, rescinding the BitLicense regime does not require any new legislation to be passed; it can be accomplished by executive fiat. The three tiers of license that Sharpe proposes are:

• Retail — Sharpe proposes a tier of license for retail stores and shops that wish to accept cryptocurrency as payment for goods and services. There would be no regulatory requirement for accepting retail payment in crypto. Merchants would be free to accept any type of crypto they choose, but there would be tax implications for accepting payment for many alt-coins. Provided the merchant has a clean background, the retail license would be granted automatically.
• Trader — Sharpe proposed a second tier of license holder for speculators in the crypto markets. This designation could apply to either individual traders or trading institutions such as funds that hope to profit from movement in the markets. Again, pending a clean background check of the institution or person, the license would be issued automatically and there would be no additional regulatory requirement.
• Bank — The final category in Sharpe’s proposed regulatory regime would be for banking institutions. Sharpe’s proposed regime would again be light-touch, with the sole qualification that crypto banking institutions would not be able to engage in rehypothecation of their assets.

Sharpe believes that a simplification of the regulatory burden facing crypto companies in New York would lead to a flowering of the industry in the state. In addition to the above proposed changes , Sharpe proposes a greatly simplified structure for collecting tax revenue from participants in the crypto ecosystem. To replace the byzantine and complicated system we currently use, Sharpe would follow a few simple steps to calculate tax owed.

First, tax would only be collected when crypto was converted to fiat currency. To calculate the conversion rate under which the tax would be applied, Sharpe proposes using the previous month’s average price for each cryptocurrency on the Chicago Mercantile Exchange. Crypto users would simply take the total amount of crypto they converted to fiat, adjust it by the average price and then use that adjusted figure to calculate the relevant sales or capital gains tax.

Following Sharpe’s overview of his proposed revamp of the New York crypto regulatory environment, a broader discussion followed, with attendees discussing the impact of New York’s excessive regulator burden and the challenges it posed for new or small business operating in the state. The recent verdict by Brooklyn Judge Raymond Dearie that SEC rules apply to ICO offerings, which will likely have a substantial impact on the regulatory environment going forward, was a topic of heavy discussion.

Coverage of the Democratic Primary race has been dominated by Cynthia Nixon’s upstart challenge to sitting Governor Andrew Cuomo. Nixon’s star power has blessed her campaign with significant media coverage, and her hard-left positions have forced Cuomo’s hand on several issues. Nixon’s challenge has forced Cuomo to soften his position on medical marijuana, for example.

Nixon’s challenge has largely been focused on issues relating to New York City. The decrepit state of the subway system has been one of the main issues in the race, with Nixon alleging that Cuomo has allowed the system to further deteriorate under his watch.

Given the pressing problems faced by New York State, the most striking facet of the coverage to date has been the pettiness and banality of the conversation. Coverage has, perhaps naturally, focused on New York City, with scant attention paid the rest of the state. The lack of focus on upstate development issues is particularly glaring, given the obvious corruption around many of Cuomo’s upstate development initiatives such as the “Buffalo Billion.” To the extent government policy has been discussed, it is typically only in the context of what new regulations to enact, or what new product or activity should be taxed and regulated.

Sharpe has struggled to generate mainstream media coverage in this environment, and he has developed novel strategies for gaining exposure. He has made use of new platforms, such as Joe Rogan’s podcast and the Rubin Report, to reach millions of prospective voters directly. These new media platforms have grown increasingly powerful over the past several years, even receiving attention from mainstream media sources like the Times. Sharpe has complemented these media appearances with local events such as Tuesday’s lunch at Crypto NYC. Sharpe may or may not be the first politician to utilize this new strategy to reach voters, but he is certainly not going to be the last.

Crypto NYC hosts events every week. Tomorrow, we host Cadence near our new office in Bryant Park. You can register for the event through our Meetup page. Please follow our medium page for more updates on Crypto NYC and the broader New York crypto community.