The cryptocurrency bill proposes the exemption of certain digital assets from being classified as securities
A new proposal that has been released by lawmakers in California aims to exempt some digital assets from being categorized as securities.
This proposal is backed by the CEO of Coinbase, Brian Armstrong, who believes that it would strengthen California’s position as the “future of finance.”
“This would be huge for California if it happens – ensuring the future of finance is built on the west coast,” Armstrong tweeted.
Armstrong continued by explaining that a common challenge that cryptocurrency startups face is in regards to how some regulators classify tokens as securities. This is in line with the Howey Test, which is a method that was developed by the Supreme Court to determine whether certain transactions qualify as “investment contracts.”
Because securities are highly regulated and are required to be registered accordingly, digital assets on the other hand, are usually unregistered. The United States Security and Exchange Commission has ruled that many cryptocurrencies are classified as unregistered securities. As a result, those who issue these securities have had to pay the price.
Examples of companies that have had to pay due to their operations include: Block.one, which paid $24 million over the EOS ICO Enigma and Veritasium, which paid $1 million for its ICO.
An ongoing high-profile example is a legal battle between the US SEC and the Telegram Open Network, which has placed the $1.7 billion TON project on hold.
“Current securities laws are well-intentioned, but stifling a lot of innovation right now,” Armstrong explained.
The new proposal states that if an asset’s profits are not completely dependent on the actions and the management of third parties, then it should not be classified as a security. It explains that the goal is to create an exception from the above definition by providing that a digital asset that meets specified criteria is not an investment contract in the form of a security.
Should it be approved and made into a bill, it would allow that presumption to be rebutted on good cause shown by clear and convincing evidence from the Commissioner of Business Oversight.