The Problem: The innovative landscape when it comes to digital currencies is developing quickly, leaving regulators and legislators struggling to determine the appropriate legal treatment of these assets. For those trying to innovate in the digital currency space, that creates a big problem. They don’t know how their products are going to be regulated, taxed, or even when they will eventually be able to be used by consumers.
One central point of confusion is whether a cryptocurrency will be considered a security or an “investment contract.” While digital assets are sometimes traded as part of a securities offering, should they be considered securities themselves? This uncertain regulatory environment slows down innovation.
The Solution: The Securities Clarity Act will help innovation flourish by creating regulatory certainty for digital assets. The legislation seeks to clarify the status of any asset sold as the object of an “investment contract,” a legal term that has been in use for 75 years, by proposing a new definition: “investment contract asset.”
Establishing that an investment contract asset (for example, a digital token) is separate and distinct from the securities offering that it may have been a part of will help to differentiate what constitutes a “security,” as opposed to a digital asset. The approach is innovation-friendly, and applies equally to all assets offered and sold, whether tangible or digital. This new defined term would refer to any asset sold as part of an investment contract that would not be considered a “security” but for its sale as part of an investment contract.
The bill would also allow companies that have already complied with current securities registration requirements, or who have qualified for an exemption, to provide for the distribution of their assets to the public without fear of additional regulatory retribution. This change will help clarify the regulatory environment for innovators and remove roadblocks to advancement in this exciting digital space.