A couple of Congressmen in the United States are trying to get an exemption for cryptocurrencies from securities law. If successful, it could signal a paradigm shift in the US regulatory climate as far as virtual currencies are concerned.
Crypto May Be Exempt From Securities Law
Rep. Warren Davidson (R-Ohio) and Rep. Darren Soto (D-Florida) introduced a bill on Thursday (December 20, 2018) called the “Token Taxonomy Act.” The bill seeks to exempt cryptocurrencies from being classified as securities. If passed, US securities law will no longer apply to virtual currency tokens once their projects become fully functioning networks.
The current securities law framework applied by the SEC to virtual assets comes from the Securities Act of 1933. A US Supreme Court ruling from 1946 introduced the “Howey Test” as a baseline set of rules to determine whether an asset is a security.
Based on the Howey Test, transactions that can be classified as investment contracts are securities. Based on this definition, many ICO tokens, according to the SEC are securities. This is because individuals invest in these ICOs (common enterprises) in the expectation of profit from the efforts of the project team or third party.
However, the sponsors of the new bill argue that the 70-year old Securities Act is inadequate to regulate a market as nuanced as cryptocurrencies. This position is one shared by many stakeholders in the industry. Expressing similar sentiments, Kristin Smith, the Blockchain Association chief said:
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.
Excellent! When we're talking about programmable money, the old rules simply don't apply anymore.
If passed, this bill will scrap the Howey test and create a new framework for crypto assets. 🤞https://t.co/1dSSRReW0U
— Mati (@MatiGreenspan) December 20, 2018
Cryptocurrency-Specific Regulations
For the sponsors of the bill, their efforts are reminiscent of the steps taken during the early days of the internet. Commenting on this, Rep. Davidson, said:
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.
For people like internet security expert and cryptocurrency enthusiast, John McAfee, the SEC has no right to regulate cryptocurrencies in the first place. McAfee hasn’t hidden his disdain for the Commission’s “encroachment” into the market with many strongly-worded posts on Twitter.
Finally!!! The sane elements of our government are introducing laws to restrict the SEC. The laws will legally prevent the SEC from interfering in any way in the workings of the Crypto world. About fucking time!!!https://t.co/sEmtVXDBDQ
— John McAfee (@officialmcafee) December 21, 2018
The current efforts by the lawmakers if successful might initiate the emergence of cryptocurrency-specific regulations in the US. Agencies like the Commodity Futures Trading Commission (CFTC) or Federal Trade Commission might now have oversight over the industry.
Will the token taxonomy act help the US in catching up with the developments in the Asian cryptocurrency market? Please share your thoughts with us in the comments below.
Image courtesy of Twitter (@MatiGreenspan and @officialmcafee).