Token Taxonomy Act Proposes Exclusion Of Cryptocurrencies From Securities Laws

The U.S is inching a step closer to determining the outright definition of cryptocurrencies.  Two congressional representatives have introduced a new bill that promises to bring regulatory clarity in a sector that faces a lot of uncertainty. Token Taxonomy Act is the name of the new bill that promises to add a new definition for digital tokens under security laws.

Token Taxonomy Act

The new bill promises a new framework that would exclude crypto assets from the old definition that stipulates what is a security. While a legal definition might appear like an insignificant change, it will have a significant impact on cryptocurrencies.  For starters, it would avert the possibility of current securities laws applying on digital tokens.

The new bill will go a long way in solving a long-running dispute centered on a controversial 72-year old Securities law. As it stands, the Securities and Exchanges Commission regulates digital tokens under the Howe Test.

Under the Howe Test, any transaction carried out with the aim of generating profits is considered securities. Crypto enthusiasts have always insisted that the law should not apply on cryptocurrencies.

The fact that most cryptocurrencies are also blockchain software platforms according to experts means they cannot be treated as securities. In addition, the experts argue that cryptocurrencies trading can take place without an intermediary something that differentiates them from average equities.

“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," said Kristin Smith, head of the Blockchain Association.

The token Taxonomy act also proposes the need for the IRS to adjust its taxframework for digital tokens. If passed, the tax regulator will have to ensure exemption of digital tokens from taxation. The agency will also have to create a provision that exempts the taxation of an profits accrued on cryptocurrencies transactions.

Cryptocurrency Regulation

A push to reclassify cryptocurrencies comes at the backdrop of the Securities and Exchange Commission waging war against a number of projects. The crackdown has come amidst growing concerns that most projects are scams designed to defraud people. The agency has also prosecuted some developers for minor violations such as failing to register their projects with the relevant authorities.

The bipartisan bill is the work of Ohio Republican representative Warren Davidson and Democrat representative Darren Soto. A push to regulate the sector has gained momentum in the recent past as legislators try to ensure more oversight on the burgeoning sector.