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Cryptocurrencies have had to face a major hurdle in the U.S. because of the securities law that was being applied to some of them. Companies and new crypto assets had to tread very carefully and jump through legal hoops to ensure that they were not labeled as a security and as a result fall under strict regulations applied to securities in the U.S. To understand the relation between securities and cryptocurrencies, we need to understand what securities are.
An investment is considered a security if it is covered under the Securities Act and Securities Exchange Act. If an investment is marked as a security then it is subject to certain registration requirements. A company or an enterprise that is offering securities must register them. In this process, they are also required to disclose other information such as:
- A description of owned properties and business purpose
- A description of the security offered
- Information regarding the company’s management
- Financial statements about the company which are certified by independent accountants
Securities & Cryptocurrencies
If a cryptocurrency falls under the securities law, it is inherently subject to regulations and laws that other securities are. That’s been true so far. However, that might be about to change as two members of the U.S. House of Representatives are seeking to exempt cryptocurrencies and certain other digital assets from federal securities laws. The bill is being called the “Token Taxonomy Act” and it seeks to amend both the Securities Act of 1933 and the Securities Exchange Act of 1934.
To simplify, the bill claims that cryptocurrencies that don’t have a central controller to be spared a securities designation since no one person or entity has control over the asset’s development or operation.
Reps. Warren Davidson who introduced the bill with Darren Soto, said in a statement, “This bill provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies… To be certain, there will be other regulatory initiatives at some point, but this legislation is an essential first step to keeping this market alive in the United States.”
This bill, if passed, would put the whole crypto market in the U.S. at ease. The securities laws that had been keeping cryptocurrencies and their parent companies on their toes for a long while would be removed. Allowing the market to be freer and not swim through the mud that is the legal documentation and filing just to convince the authorities of what is inherently true with cryptocurrencies.