The profound implications of the token taxonomy act, explained!
The re-introduced bipartisan legislation by US representatives Warren Davidson and Darren Soto, monikered as the token taxonomy act, could bring much-needed clarity into the blockchain-crypto landscape in the United States.
If passed by the US Congress, the bill could see certain digital tokens being excluded from regulations traditionally associated with securities, by amending the Securities Act of 1933 and the Securities Act of 1934. It could also help eliminate uncertainties, among investors and token issuers, by offering a formal federal definition for digital tokens using clear legislative language.
On top of this, the reintroduced version of the token taxonomy act also clarifies the jurisdiction of other regulators such as Commodity Futures Trading Commission (CFTC) and the U.S Securities and Exchange Commission (SEC), as they both pose conflicting notions currently.
So is this act important? It is! Because if approved, it could be critical in keeping the US blockchain-crypto market competitive amidst leading global players such as the United Kingdom.
The resurgence of the US blockchain-crypto industry?
The token taxonomy act could be critical in the revival of the US blockchain-crypto market, which has suffered heavy losses as a result of increased regulatory oversight from authorities such as the SEC.
# of ICOs, country-wise
The number of Initial Coin Offerings in the US has dropped by a whopping 52% during Q1 2019 when compared to the previous quarter. This depreciating trend can be attributed to the rampant crackdown on ICOs by the SEC.
Against the backdrop of declining ICO numbers, there’s a new type of tokenized fundraising called Security Token Offering. STO’s gained popularity as they are compliant with regulatory norms as set forward by security regulators like the SEC, meaning they run very little risk. The number of STOs surged by 130% during Q1 2019, according to InWara’s Security Token Offering report.
The SEC was prompted to take action against several ICO projects after numerous ICO exit scams popped which cost investors millions. According to the SEC, most Initial Coin Offerings are in essence, security offerings, as they satisfy they Howey test. And since by law, you are required to register with the SEC while launching a security offer, most ICO projects were in violation of this.
The SEC’s take on digital assets
Just a few days earlier, the U.S Securities and Exchanges Commission had released a new framework that aimed to educate market participants to identify digital assets that qualify as an investment contract. According to the SEC, an economic transaction is considered as an investment contract if it qualifies the Howey test, which most token offerings often do.
But the regulatory authority had emphasized that this framework does not represent a rule, regulation or sanctioned statement but instead, represents the views of the Strategic Hub for Innovation and Financial Technology or Finhub, division of the SEC. To know more on SEC digital assets framework check out this article.
Final Thoughts on the Token Taxonomy Act
The token taxonomy act will undoubtedly play a critical role in the future of the US blockchain-crypto market. Why? Firstly, it could bring regulatory clarity to the cryptocurrencies market by chipping away at traditional notions. Currently, the Commodities Futures Trading Commission (CFTC) treats digital assets as “commodities”, the Internal Revenue Service (IRS) treats them as “property” and the SEC treats most as “securities”. These conflicting notions are bound to hinder the growth of these new asset classes in the future.
On top of this, if this act is approved, it could fuel the resurgence of the US blockchain-crypto market which is in the doldrums currently. While other countries are leaps and bounds ahead in terms of a conducive regulatory environment.
All this only happens, if the bill is passed. But even if it isn’t, it could help start a critical conversation amongst regulatory authorities. Which is “Is the Howey test, a law created by the Supreme court back in 1946 the most accurate tool to classify something as advanced as cryptocurrencies or novel as ICOs?”
