As a whole, the cryptocurrency industry is vastly unregulated with much uncertainty about how to regulate crypto assets and what to classify them as.
There has been a lot of speculation on if they should classify certain cryptocurrencies as pseudo-commodities like bitcoin (BTC) or as securities like stocks and bonds.
However, now the crypto industry may finally gain clarity on this matter due to two U.S. congressman introducing a new bill to exclude digital currencies from the 72-year-old definition of a security.
What is a Security?
The legal definition of a security defined by the Securities and Exchange Commission (SEC) can be quite broad and anything that falls under this definition, can be complex and expensive to comply with.
To give a simple and basic definition of a security; it’s something that is fungible and considered a negotiable financial instrument that holds monetary value.
There are many types and stipulations of securities which is why it’s been so difficult for regulators to apply this definition to cryptocurrencies.
Cryptos differ vastly from anything the SEC has regulated before and thus deserve a revised regulatory stance, which is exactly what two US Congressman intend to do.
The two congress representatives, Warren Davidson and Darren Soto, released a bipartisan effort called the “Token Taxonomy Act”. In this act, they define a “digital token” and clarify that cryptocurrencies would not fall under securities laws once they become a fully functioning network.
Commenting on their efforts to provide clarity on cryptocurrencies, 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,
The Existing Regulatory Framework
The SEC uses what’s called a “Howey Test,” to help determine whether cryptocurrencies fall under the decades old securities law. They have applied this test to a variety of initial coin offerings (ICOs) which led to labeling as securities.
However, experts say the standards used in the Howey Test and set by the SEC should be more nuanced for digital assets. For many cryptocurrencies are far more complex than traditional assets classified as securities.
Some cryptos are also blockchain software platforms used to build an entire network of decentralized applications (dapps) and other digital assets. Trading them without an intermediary is also possible, which is far different from traditional stocks and bonds.
Kristin Smith, head of the Blockchain Association provided her thoughts on the ludicrous nature of applying the 72-year-old definition of securities to cryptocurrencies and agreed with Soto and Davidson’s proposal:
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.
New Proposed Regulation
If the new bill proposed by Davidson and Soto passes, they will amend the Securities Act of 1933 and the Securities Exchange Act of 1934. The intention is to add a new definition for digital tokens and even exempt cryptocurrencies from different taxes.
There are many prominent individuals and entities standing behind this new bill to see that it passed. Over 50 different industry participants including experts from Nasdaq, Fidelity, State Street, the U.S. Chamber of Commerce and others gathered to discuss regulatory shortcomings.
Their goal is to come to a logical agreement on the creation of a proper regulatory framework for cryptocurrencies and digital assets. The SEC’s decision on updating their securities definition is of vital importance to the cryptocurrency industry and will help create a proper regulatory environment for crypto.
Do you think the SEC will change the 72-year-old securities definition to exclude cryptocurrencies? Let us know what you think in the comment section below.