Prominent Bitcoin and Ethereum exchange and wallet Coinbase announced that it is forced to stop supporting customers in Hawaii due to an “impractical” and “untenable” regulatory policy.

Citing the reason for indefinitely suspending its business in Hawaii, Coinbase revealed:

The Hawaii Division of Financial Institutions (DFI) has communicated regulatory policies which we believe will render continued Coinbase operations there impractical.

Coinbase was first notified of the restrictive regulatory policy by the DFI in September, one that makes it “impossible” for the exchange to operate in the state, according to a member of Coinbase’s legal team.

Fundamentally, the regulation demands Coinbase or other digital currency operators to hold cash reserves equivalent to the value of the digital currency held for customers.

Coinbase adds:

This policy is obviously untenable. No digital currency business – and frankly, no commercially viable business anywhere – has the capital to supplement every customer bitcoin with redundant dollar collateral.

As a result, Coinbase has now made it mandatory for Hawaii-resident users to close their accounts within the next thirty days. The exchange will also halt new account signups in America’s newest state “for the indefinite future.” Customers can either send their bitcoin to an alternative wallet or swap the cryptocurrency for fiat before their accounts’ closure.

The exchange adds that it hopes to open shop in Hawaii in the future by working with policymakers to change the law or by encouraging the DFI’s commissioner to “revisit” the existing policy discretion under Hawaii law.

Coinbase’s exit comes at a time when Hawaii is considering a bitcoin- and blockchain-friendly bill, one that aims to establish a working group toward the exploration of digital currencies and blockchain technology in Hawaii’s public and private sectors.

“Digital currencies such as bitcoin have broad benefits for Hawaii. A large portion of Hawaii’s tourism market comes from Asia where the use of bitcoin as a virtual currency is expanding,” the bill’s text read.

The digital currency exchange said it was “heartened” that members of state’s House of Representatives had introduced the bill and added that it would look forward to working with them.

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