A new bill introduced by Reps. Warren Davidson and Darren Soto seeks to exempt cryptocurrency from federal securities laws.
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The “Token Taxonomy Act” will seek to amend “digital tokens” from both the Securities Act of 1933 and the Securities Exchange Act of 1934.
According the bill, “digital units created… in response to the verification or collection of proposed transactions” (mining, basically) or “as an initial allocation of digital units that will otherwise be created” (as in a pre-mine). These tokens must be governed by “rules for the digital unit’s creation and supply that cannot be altered by a single person or group of persons under common control.”
A “digital token,” according to the text:
“…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; and…after consensus is reached, cannot be materially altered by a single person or group of persons under common control; is capable of being traded or transferred between persons without an intermediate custodian…”
And, most particularly, a digital token “is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”
“This bill provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies,” said Davidson 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.”
The bill mirrors language from a previous bill, introduced in September 2017, which sought to create a de minimis exemption for cryptocurrency purchases.
At that time, the U.S. Internal Revenue Service treated cryptocurrencies as property, thus, transactions require a capital-gains taxable event when 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.
Likewise, the bill will strive to make cryptocurrency exchanges tax-exempt, creating an added exclusion for individual retirement accounts (IRAs) together with gold or precious metal backed IRAs.
Coin Center, a Washington, D.C. industry activism consortium, praised the bill in a blog post on Thursday.
“We are happy to see continued action from Congress to implement common-sense clarifications and adjustments to the regulatory treatment of cryptocurrencies,” wrote James Foust, senior research fellow.
The Federal Trade Commission (FTC) has asked the public to comment on the possible jurisdiction of the FTC regarding cryptocurrency.
“While this legislation is a great first step, we are looking for feedback. The Federal Trade Commission (FTC) has a history of policing web services, while the Commodities Futures Trading Commission (CFTC) has authority over commodity derivatives,” said Rep. Soto.
“To what extent does the jurisdiction of the FTC apply to digital tokens?…Can we address this issue in this legislation or will we need subsequent legislation to effectively regulate this emerging sector?”