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House banking committee adopts substitute for bill defining digital assets, removes mining provisions
Summary
The Kentucky House Standing Committee on Banking and Insurance adopted a committee substitute for House Bill 701 that defines digital assets, affirms the right to hold and transact them, removes proposed mining restrictions and clarifies that businesses are not required to accept digital assets as payment. The committee voted to advance the bill.
FRANKFORT — The House Standing Committee on Banking and Insurance on Monday adopted a committee substitute for House Bill 701, a measure that seeks to set state-level definitions and some regulatory boundaries for digital assets.
State Rep. Adam Bowling, who sponsored the measure, told the committee the substitute removes a previously proposed mining section and clarifies that the bill "shall not require any person to accept digital assets for payment for legal goods or services." Bowling said the bill aims to protect "monetary freedom" and prevent outdated regulations from impeding commerce as blockchain technology and digital assets grow.
The substitute keeps several provisions from the draft, Bowling said, including definitions for digital-asset activity, language intended to preserve an individual's right to hold and transact in digital assets, and a provision giving the Kentucky attorney general authority to prosecute fraud under Kentucky's consumer protection laws. "There are 5 sections to this bill," Bowling said, describing the portions addressing definitions, the right to hold and transact, technical protocol clarifications and treatment of certain activities so they are not treated as securities.
Ashley Gunn of Coinbase, who identified herself as overseeing state policy affairs for the company, answered technical and federal-regulatory questions from the committee. Gunn said the bill does not "explicitly" declare digital assets to be commodities but seeks to make clear that specified crypto activities are not securities. She told the committee there has been active federal litigation over whether some activities — including staking and infrastructure services — should be treated as securities, and said, "That case as of Friday has been completely dismissed." Gunn also noted Coinbase's obligations as a federally regulated money-services business and emphasized compliance with anti-money-laundering and know-your-customer laws.
Members asked how the state bill intersects with federal decisions and local authority. Representative Auel asked why Kentucky would preemptively characterize digital assets ahead of federal regulators; Bowling answered that other states have taken similar approaches and Kentucky should provide clarity now. Representative Hancock and others raised consumer-protection and money-laundering concerns; Hancock said those issues informed her decision to vote yes after hearing explanations.
Representative Lockett said the measure "lays the groundwork" so Kentucky can move quickly once federal law or guidance clarifies whether particular digital-asset activities are securities or commodities. Representative Grossberg described the subject as ambiguous but said advancing the bill would place the state "in the forefront" to respond as the law develops.
The committee adopted the substitute by voice and then passed the bill as amended on a roll call. The roll call recorded a majority of yes votes and one member who chose to "pass" (recorded as an abstention); members who explained their votes included Representative Camille (who said she would "pass" to continue studying the issue), Representative Grossberg ("yes with reservations") and Representative Hancock (yes). The committee advanced HB 701 as amended.
The bill now moves to the next step in the legislative process.
