Colorado Digital Token Act Exempts Cryptocurrencies From Some Securities Laws

News, Regulation | January 7, 2019 By:

Colorado lawmakers have introduced a new bill to exempt cryptocurrencies from certain securities laws.

The new bill, called Colorado Digital Token Act, was proposed by Republican Jack Tate and Democrat Steve Fenberg. It provides limited exemptions from the securities registration and securities broker-dealer and salesperson licensing requirements for persons dealing in cryptocurrencies.

The bill defines cryptocurrency as a digital unit with specified characteristics, secured through a decentralized ledger or database, exchangeable for goods or services, and capable of being traded or transferred between persons without an intermediary or custodian of value.

Sen. Jack Tate said that they submitted the Colorado Digital Token Act after a bill aimed at putting Colorado at the forefront of blockchain policy failed to pass the Senate in May 2018.

“We had a broad approach (in the bill) last year without any stakeholder input,” said Tate. “What is different with having the programmatic approach is that it’s a narrow, nascent technology versus dealing with an established industry like alcohol. All the big players (from the alcohol industry) were there, and it was more like a showdown at Gucci Gulch. Here, (blockchain) is a nascent technology dealing with a framework meant for other things. How do we update the regulatory framework now that we know there’s innovation out there? We don’t want to stifle innovation.”

According to Tate, the new bill was touched by many who opposed the last one, including regulators from the state’s banking and securities divisions. The bill will enable businesses in the state “that use cryptoeconomic systems to obtain growth capital to help them grow and expand.” If a token doesn’t qualify under the Colorado safe harbor law, it will be analyzed under typical securities law, or what is known as the Howey Test.

“We need this because, right now, we have regulatory uncertainty in terms of blockchain technology,” Tate said. “And where there’s uncertainty, there’s an ambivalence to making capital investments and business investments. In addition, companies who’ve made the plunge had excessive legal costs trying to sort through the uncertainty. The overall goal is to make sure Colorado’s innovative spirit stays in place.”

In August 2018, Jared Polis, the governor-elect of Colorado, said in his campaign that he will ensure that the state explores the potential use of blockchain technology and works alongside the business community, policy experts, local communities, and Coloradans to build a robust economy for the future.

“My goal is to establish Colorado as a national hub for blockchain innovation in business and government,” Polis said at the time. “I believe strong leadership will put Colorado at the forefront of innovation in this sector – encouraging companies to flock to the state and establishing government applications that save taxpayers money and create value for Colorado residents.”