The Token Taxonomy Act of 2019-2020 is an important bill looking to implement a “light touch” regulation for the digital currency industry. The bill is the first attempt by Congress to address significant ambiguities and confusion regarding the appropriate application of the current corporate securities laws to emerging digital assets, including cryptocurrencies. The proposed legislation was originally created by Republican Representative Warren Davidson of Ohio and is currently co-sponsored by other Republicans and Democrats, showing that this is not a partisan issue. The current Co-Sponsors are: Rep. Darren Soto (D-FL-9), Rep. Josh Gottheimer (D-NJ-5), Rep. Ted Budd (R-NC-13), Rep. Tulsi Gabbard (D-HI-2), Rep. Scott Perry (R-PA-10), Rep. John W. Rose (R-TN-6), Rep. Eric Swalwell (D-CA-15), and Rep. Anthony Gonzalez (R-OH-16). The bill is also currently sponsored by several prominent entities, including IBM, U.S. Chambers of Commerce, NASDAQ, and Coinbase.
The bill looks to accomplish the following: Exclude digital tokens from the definition of a security; Direct the SEC to enact certain regulatory changes regarding digital units secured through public-key cryptography; Adjust taxation of virtual currencies held in individual retirement accounts; Create a Tax exemption for exchanges of one virtual currency for another; and Create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other cash. Digital tokens, once removed from the definition of a security, would then be separately defined as something that is created in response to (i) verification of collection of proposed transactions, (ii) pursuant to the rules for the digital units’ creation and supply cannot be altered by any single person or persons under common control, or (iii) as an initial allocation of digital units that will otherwise be created in accordance with (i) and (ii). This bill has gained my support for a number of reasons, in particular it brings a much-needed level of clarity and regulatory certainty by defining what a digital token really is and I believe this is a positive step that will allow digital currencies to grow and become more widely accepted.
I expect this bill will have a significant effect on the digital currency and blockchain industries as it will make it easier for entrepreneurs and investors to adopt digital currencies and utilize them as a means of fundraising. Many entrepreneurs and investors have shied away from this industry because of the lack of regulations and the possibility that the SEC can swing the hammer and cripple the industry. Due to this, many have viewed digital currencies as a “fad” or something that will not last – many investors have looked to short digital currencies as well. This bill will be likely to prove that this industry is here to stay and will allow the industry to return to a growth phase. However, we need this bill to gain more support and more co-sponsors if it is going to have a chance at passing. The recent Facebook Calibra Senate Hearing showed that many members of congress realize that it is imperative that they enact clarifying legislation to govern this emerging industry sooner rather than later. That is why it is so important that we lend this bill as much support as we can. Personally, I have been involved with the bill in various ways. First, I am in direct and constant communication with the team in D.C. that is in charge of the bill, providing feedback and suggestions throughout the process. Second, I have contacted my district representative in the hope of gaining their support for the bill. Lastly, I have been advocating for the bill by attending various digital currency-related events in the U.S. and online via articles and my personal podcast, Cryptos with Mitesh. There are so many use-cases and ways we can all benefit from digital currencies and blockchain technology. I personally believe that we should follow IBM, the U.S. Chambers, NASDAQ, and Coinbase and so many more by supporting this bill.