Kate Rooney, CNBC’s markets reporter, has revealed that two congressmen are working on a bill to remove crypto from the 72-year-old U.S. securities law. The representatives, Warren Davidson and Darren Soto, are calling it the “Token Taxonomy Act” and will be presenting their ideas to the House within the next few months.
Should the House pass the bill, cryptocurrencies and initial coin offerings (ICOs) will no longer be under the Securities and Exchange Commission (SEC) regulations.
History Repeats Itself
Comparing the state of crypto to that of the early internet, Davidson stated that back then, Congress had to pass regulations without over-doing it. The same must be done here if we are to keep the crypto industry growing:
“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.”
Of course, regulators are worried about consumer safety in the cryptocurrency industry. 2018’s big blowup didn’t help with things either, as many companies lost large investments of Bitcoin and other cryptos in a short period of time.
Cryptocurrency enthusiasts often state their disgust at the government using such an old framework to regulate a modern asset. As of now, the SEC decides which cryptos are securities based on the “Howey Test” from 1946. Essentially, if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,” then that investment is considered a security.
Fortunately for us, those in power are starting to realize that cryptoassets are a little different from traditional ones. Because of blockchain technology, there isn’t always an interfering central authority. That, and platforms can expand and improve over time. These investments aren’t necessarily like a regular stock.
Kristin Smith, leader of The Blockchain Association, the first group to lobby for blockchain technology at Washington, agrees: “These decentralized networks don’t fit neatly within the existing regulatory structure. This is a step forward in finding the right way to regulate them.”
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A Change of Heart
This news comes after SEC chairman Jay Clayton stated that he would not update the Commission’s regulations for cryptocurrencies. He believes that every ICO is a security aside from Bitcoin and Ethereum, which should be registered as commodities. The head of the Division of Corporation Finance at SEC, William Hinman, echoed this, stating that ICOs are securities because a central party is benefitting from investments.
If approved, the Token Taxonomy Act would amend the Securities Act of 1933 in addition to the Securities Exchange Act of 1934, which established the current securities laws. Only this time, the bill would add a new definition for “digital tokens.”
However, it’s important to note that digital assets will still see regulation, says Overstock.com blockchain lobbyist Kristin Smith. She continues, stating that the job would fall to the Federal Trade Commission or the CFTC should this bill pass. Also, this bill would cause the IRS to alter virtual currency taxation.
The Token Taxonomy Act is the result of a roundtable with over 50 representatives this past September. Davidson hosted it, and members included Fidelity, Nasdaq, State Street, Andreessen Horowitz, and the U.S. Chamber of Commerce.
Parties spoke on companies struggling with ICO taxation—especially regarding utility tokens. They argued that if these regulations aren’t “crystal clear,” then the industry in the U.S. could not flourish and these companies would move overseas.
The bill will need to be reintroduced next year, however, the presentation causes much to think about, says Smith.”It shows that there’s momentum on both sides. There’s interest among bipartisan members, and lays groundwork for the next Congress.”