Federal lawmakers are re-upping efforts to exclude digital currencies from the definition of a security.
The Token Taxonomy Act was introduced in December 2018 but never went to a vote. Rep. Warren Davidson (R-OH) announced earlier this month the legislation was being reintroduced, calling it the “key to unlocking blockchain technology in the U.S.”
The bill, which follows months of collaboration between lawmakers and stakeholders, aims to clarify regulatory rulings and a patchwork of judicial decisions that officials said has created uncertainty for the cryptocurrency industry.
Under the bill, the Securities Act and the Securities Exchange Act would each be amended to exclude “digital tokens” from the definition of a security. Digital token would be defined as a digital unit that, among other things, has a transaction history recorded in a distributed ledger and is “capable of being transferred between persons without an intermediate custodian.”
The bill also exempts from the Security Act’s registration requirements transactions that involve the sale of a digital unit if the person has a “reasonable and good faith belief” that the unit is a digital token. Should the Securities and Exchange Commission determine the unit is a security, the person must take reasonable efforts to stop sales and return the proceeds from any sales.
The legislation further addresses the tax implications of buying and selling cryptocurrencies. For example, it would exclude from gross income any gains from the sale or exchange of virtual currencies that do not exceed $600. It would also allow one virtual currency to be exchanged for another tax-free.
One significant provision that was not part of the earlier version of the legislation is that it preempts state law. The bill’s sponsors referenced “conflicting state initiatives,” while singling out New York’s BitLicense law as “heavy-handed.”
“A preemption provision was included to ensure The Token Taxonomy Act provides the certainty innovation needs to flourish,” they said in a statement announcing the introduction of the act.
Co-sponsored by Reps. Darren Soto (D-FL), Josh Gottheimer (D-NJ), Ted Budd (R-NC), Tulsi Gabbard (D-HI), and Scott Perry (R-PA), the bill is a welcome attempt from Congress to provide legal clarity for digital assets and better position the U.S. to compete on a global scale.