Bipartisan Bill to Exclude Digital Tokens from Federal Securities Laws
On March 9, 2021, a bipartisan bill was reintroduced that would, among other things, exclude digital tokens from the definition of a security under federal securities laws. As introduced, H.R. 1628, known as the Token Taxonomy Act, would define a “digital token” as a token that is created pursuant to rules for which the creation and supply are not controlled by a central group or single person, among other requirements. To qualify as a “digital token” under the bill, the transaction history must be able to resist modification or tampering by a single person or group or persons under common control. Moreover, the digital token must be capable of being transferred between persons without an intermediate custodian.
Digital assets that fit within the definition of a “digital token” under the bill would be explicitly excluded from the definition of a security under the federal securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The bill would also amend certain rules for taxing virtual currencies, including treating exchanges of virtual currency as tax-exempt and ensuring certain virtual currencies held in individual retirement accounts are not treated as distributions.
The bill was initially introduced in late 2018, and reintroduced with minor changes in 2019. The latest iteration of the bill may face opposition in Congress, by consumer protection groups and by states that have introduced their own regulatory scheme for digital assets.
On the same day H.R. 1628 was introduced, lawmakers also introduced H.R. 1602, the Eliminate Barriers to Innovation Act of 2021, which would require the SEC and CFTC to establish a joint working group on digital assets and publish a report with recommendations.