A new bill proposed by two members of U.S. House of Representatives seeks to rewrite definitions used by the Securities and Exchange Commission (SEC) so as to exclude cryptocurrencies and ICOs from its supervision.
Originally reported by CNBC’s Kate Rooney, Representatives Warren Davidson and Darren Soto proposed the bill termed “Token Taxonomy Act” which seeks to amend both the Securities Act of 1933 and the Securities Exchange Act of 1934.
The bill comes as crypto participants and stakeholders have called for the review of the SEC definitions which they say is dated—lasting over 7 decades. The Howey Test, for instance, often used by the SEC to determine what token qualified as security dates back to 1946. Crypto participants argue that decentralized networks of today do not fit neatly within the existing regulatory structure.
The Content of the Bill
A key aspect of the text is its definition of a digital token which its states is “not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.” The bill alluded to the decentralized nature of the cryptocurrencies as reason to exclude them from similar rules that govern company stocks.
Whereas company stocks are influenced directly by the activities of a ‘centralized’ board, cryptocurrencies use a consensus achieved by the network which cannot be altered a single person or group of persons. It was on this premise of decentralization that Ethereum was excluded from federal securities laws in earlier this year.
The bill which was largely crypto-friendly sought to address definitions around cryptocurrency taxation. Some members of the House had earlier written to the Internal Revenue Service (IRS) to review its guidelines for cryptocurrency in line with current understanding of cryptocurrencies. The IRS considers cryptocurrencies as digital assets or properties and as such is taxed when spent irrespective of the value. To address this, the new bill proposes:
“The amount of gain excluded from gross income under subsection (a) with respect to a sale or exchange of virtual currency shall not exceed $600.”
Don’t Stifle Innovation
Regulatory uncertainty has been identified as one of the major hindrances to blockchain and cryptocurrency industry in the country. Enthusiasts have argued that
In a recent interview with Smartereum, Ben Marks the founder of blockchain VC firm Blocktrade explained that U.S. regulators are cautious with their regulation of the cryptocurrency space in other not to stifle innovation in the space.
Likening the crypto era to the advent of internet, Davidson expressed the need for America to take up a leadership role in the blockchain space.
“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space.”
According to him, the bill “provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies.”
As Smartereum reported, SEC said it was preparing a comprehensive guide for cryptocurrency developers to distinguish between utility tokens and security tokens. Rep Davidson said he believes there will be other regulatory initiatives after the bill which says is an essential first step to keeping this market alive in the country.
In September, about 80 representatives from the crypto and fintech sectors stormed the U.S. parliament requesting regulatory clarity especially as regards token classification. In response to the bill, blockchain advocacy group Coin Center wrote:
“We are happy to see continued action from Congress to implement common-sense clarifications and adjustments to the regulatory treatment of cryptocurrencies.”