U.S. Congress proposes bill to change Securities law for cryptocurrencies
2019 the Year of STO… or Utility Tokens?
The Federal Government has it’s hands full this year with a looming government shutdown before Christmas; but, the cryptocurrency roundtables and hearings have been ongoing throughout 2018.
Will this finally bring some regulatory clarity so businesses in the United States can continue and grow?
Our team has been advocating for clarity around utility tokens that provide blockchain-as-a-service (BaaS). Questions remain around broker-dealer licenses, money transmitter rules and, of course, anti-money-laundering (AML) compliance.
Many projects are simply ending services entirely or banning United States citizens. This gives the token no value and even less chances of recovery in the market.
The “Token Taxonomy Act.”
Introducing the “Token Taxonomy Act” ; a bill was introduced by Representative Warren Davidson and Darren Soto, a Republican and Democrat. After roundtables and hearing the group has decided to put forth the bill.
The main and first categorical demand to this bill is the exclusion of “digital tokens” from being defined as securities. Amending both the Securities Act of 1933 and the Securities Exchange Act of 1934.
The Securities and Exchange Commission (SEC) uses what’s known as the “Howey Test,” which comes from a 1946 U.S. Supreme Court decision involving a Floridian citrus farmer to determine whether or not a cryptocurrency is a security.
Decentralization and Token Confusion
We can debate this all day, but nothing is truly decentralized; it takes a group of people to create, setup and maintain an infrastructure… even if just initially.
This can provide a lot of clarity to projects who have laid out something open-source or usable without their intervention.
The question becomes even more complex around an Initial Coin Offering Offerings (ICO’s) that used funding to build future services or network fees that were pre-product.
When a platform sells tokens that are deemed a “security,” how can this be used to pay for services? I do not buy Verizon stock to pay for my cell phone services.
“These decentralized networks don’t fit neatly within the existing regulatory structure,” says blockchain lobbyist Kristin Smith. “This is a step forward in finding the right way to regulate them.”
Will the Bill Pass?
Thursday’s bill also directs the SEC to adjust taxation of virtual 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.
The IRS treats cryptocurrencies as a kind of property and triggers a capital-gain event when traded and even spent.
“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,” the new bill states.
Reports say that this is bill is mostly symbolic, as Congress is scheduled to go home for vacation on December 21st, one day after bill introduction. It will hopefully be re-introduced when the Democrats control the House next year (2019).
The bipartisan support is a great start. The momentum will surely continue to grow as more attention is brought to this emerging sector.