Texas Leads the Charge in Cryptocurrency Regulations: The Proof-of-Reserves Bill

Introduction

The Lone Star State is taking the reins in cryptocurrency regulation, heralding a new era of financial accountability. In a remarkable move, Texas’ Senate recently passed House Bill 1666, designed to enforce stringent ‘proof-of-reserve’ requirements on cryptocurrency exchanges. The bill, which sailed through the Texas House of Representatives without significant amendments, is now awaiting the governor’s signature to become law​¹​. This legislation comes as part of Texas’ proactive approach to cryptocurrency regulation, establishing the state as a pioneer in this burgeoning industry.

The Proof-of-Reserves Bill Details

One of the key aspects of the bill is its restrictions on digital asset providers servicing more than 500 customers in Texas and holding at least $10 million of customer funds. These providers are prohibited from mixing customer funds with operational capital and using customer funds for transactions not demanded by the customer. Furthermore, the legislation obliges these exchanges to maintain sufficient reserves to fulfill potential withdrawals at any time, providing an extra layer of security for customers​²​.

The bill doesn’t stop at compliance. It includes measures for enforcing these provisions, granting the Texas Department of Banking the power to revoke licenses of providers who fail to meet these requirements. This move, combined with other recent legislative actions, shows Texas setting new precedents in the realm of digital currency, shaping the future of the industry​³​​⁴​.

Implications of the Texas Virtual Currency Act

The Texas Virtual Currency Act (TVCA), in which the ‘proof-of-reserves’ bill is a part, recognizes the legal status of virtual currency, subjects cryptocurrency to commercial laws under Texas regulations, and provides legal rights to cryptocurrency holders​⁵​​⁶​. Cryptocurrency firms offering ICOs must comply with the Texas Securities Act, and violations are subject to administrative, civil, and criminal sanctions​⁷​.

The Act also supplies legal rights to cryptocurrency investors, ensuring that virtual currency buyers acquire all rights in the virtual currency that the transferor had or had the power to transfer. This provision allows for multiple investors to have property rights in a single cryptocurrency​⁸​. Finally, the TVCA provides special rights to qualifying purchasers, defined as purchasers who obtain control of a virtual currency for value and without notice of any adverse claim​⁹​.