In early December, U.S. Representative Warren Davidson (R-Ohio) confirmed his intention to introduce new legislation to protect cryptocurrencies from being defined as securities. That promise was kept on December 20, as Davidson and co-sponsor Darren Soto (D-Fla.) introduced the Token Taxonomy Act, H.R. 7356.
According to a statement posted on Davidson’s official website, the proposed bill would make changes to existing laws to define “digital tokens” and exempt them from securities laws once they become a functional network:
“This bill clarifies a 1946 court case that the SEC has been using to determine what a security is and effectively makes it clear that the finished product (or oranges as it relates to the Howey Test) is no longer a security.”
In addition to amending the current Securities laws by creating a new definition for cryptocurrencies, the proposed legislation will also make changes to the way the IRS taxes digital currencies. The bill creates a tax exemption for users who exchange one digital currency for another, and a "de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash.”
As CNBC reported, however, no one should expect action on the bill in the immediate future:
This week's bill is largely symbolic. Friday is likely the last day Congress is in session and the bill will need to be reintroduced next year, when Democrats are in control of the House.
The representatives behind the legislation have previously expressed concerns over the uncertain regulatory environment for digital currencies and initial coin offerings. This bill was reportedly written to provide greater certainty for U.S. markets, ensuring that American innovators can continue to compete with crypto-friendly markets around the world.
The bill’s authors were keenly aware of how Congress dealt with the last great technological innovation, the internet, and intentionally sought to replicate that light-touch regulatory success. According to Davidson:
“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.”