US Lawmakers Propose To Exclude Cryptocurrencies From Securities Laws

News, Regulation | December 21, 2018 By:

Two US lawmakers have proposed to exclude cryptocurrencies from the definition of a security.

On Thursday, Representatives Warren Davidson and Darren Soto introduced a bill, called the Token Taxonomy Act of 2018, that seeks to exclude digital assets from being defined as securities by amending the Securities Act of 1933 and the Securities Act of 1934. The bill calls for the US Securities and Exchange Commission (SEC) to enact certain regulatory changes regarding digital units secured through public key cryptography.

The Token Taxonomy Act defines “digital tokens” as “digital units created… in response to the verification or collection of proposed transactions, pursuant to rules for the digital unit’s creation and supply that cannot be altered by a single person or group of persons under common control, or as an initial allocation of digital units that has a transaction history that is recorded in a distributed, digital ledger or digital data structure in which consensus is achieved through a mathematically verifiable process. A digital token is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”

Last month, SEC chairmain Jay Clayton said that while bitcoin remains a commodity, other ICO tokens classify as securities and companies that want to conduct one have to adhere to any relevant legal requirements that the agency has outlined.

The Token Taxonomy Act, however, argues that securities laws should not apply to cryptocurrencies once they become a fully functioning network. If the bill passes, cryptocurrencies will likely fall under the purview of the Federal Trade Commission or the Commodity Futures Trading Commission (CFTC).

In addition, the bill also directs the Internal Revenue Service (IRS) to adjust taxation of digital currencies, create a tax exemption for exchanges of one virtual currency for another and to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency.

“This bill provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies,” Davidson said in a statement. “To be certain, there will be other regulatory initiatives at some point, but this legislation is an essential first step to keeping this market alive in the United States.”