Texas Passes Game-Changing ‘Proof of Reserve’ Law for Crypto Exchanges – Is Your Money Safe?

In the Brief:

  • The Texas House of Representatives passed a "Proof of Reserve" bill for crypto exchanges
  • This bill requires that exchanges maintain sufficient reserves and prohibits customer funds from being mixed with other operational capital
  • Non-compliance risks license revocation and the bill mandates annual reports and transparency plans
  • Its goal is to promote accountability and protect crypto investors

3 - 5 minute read

The Texas House of Representatives passed a bill, dubbed the ‘Proof of Reserve,’ that aims to require crypto exchanges to maintain reserves “in an amount sufficient to fulfill all obligations to customers.” In the event that the bill is passed and signed by the governor, it could become law as of September 1, 2023. These amendments, introduced to the Texan Finance Code, would require digital asset providers with more than 500 customers in the state and at least $10 million in customer funds to maintain reserves and stop from comingling the customer’s funds with any other type of operational capital, as well as holding reserves in an amount enough to allow for all the possible withdrawals.

According to reports, the Texas Banking Department would also require an annual report to be filed by each exchange within 90 days from the end of each fiscal year. The report must declare any outstanding liabilities to customers alongside an attestation by the auditor.

It is essential that exchanges maintain transparency, which is why the bill also mandates them to “create a plan” that would allow auditors to review the information made available to customers. Exchanges failing to comply with these requirements would risk license revocation.

Texas has been recognized for taking a cautious approach toward crypto in the aftermath of market failures in 2022. In April, the state’s senate approved a bill that aimed at largely removing incentives for local crypto miners.

Michael Goldfarb, co-founder and CEO of Gold Bullion International, commented, “Regulators are taking a more measured approach” to cryptocurrencies. The bill in Texas is welcomed as it ensures accountability and provides a level of protection for crypto investors.

In contrast, supporters of cryptocurrency were not delighted with the bill in Texas that removed the incentives for crypto miners. The state’s approach towards crypto is a well-received measure to ensure compliance with rules and regulations.

The implementation of these rules in Texas may set a precedent for other states and countries to follow. It indicates the growing commitment amongst lawmakers worldwide to regulate the digital asset markets while ensuring protection for stakeholders. This regulation is part of an overall effort to make the market less volatile and less susceptible to fraud.

This “Proof of Reserve” bill is an important step taken by the state towards regulating cryptocurrency. While it does not necessarily reduce the risk that comes with investing in cryptocurrency, it creates a legal framework that makes the digital asset market more transparent and accountable. It marks an essential milestone in freeing crypto from the stigma it was associated with being unregulated.

Moreover, this bill may also have ramifications for traders. Firstly, it could likely increase the cost of business for smaller digital asset providers who do not maintain enough funds to meet the minimum reserve requirement. Secondly, it may result in more stable pricing as exchanges are compelled to maintain enough reserves to address any possible withdrawals, which would also provide reassurance to prospective investors.

The Bottom Line

Crypto investors should pay attention to the evolving regulation in Texas and other places as it could lead to compliance issues and potential penalties. While this bill aims to maintain the credibility of the crypto market, it could increase the cost of doing business for smaller digital asset providers. The increasing support for regulation from governments worldwide is a promising sign for investors looking for protection in the ever-evolving crypto market.

The “Proof of Reserve” bill could make the market less susceptible to fraud and price fluctuations. However, it may increase costs for smaller digital asset providers and result in more stable pricing for investors.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *