California Bill Would Not Classify Digital Assets As Securities
There is a bill before the Assembly in California that, if passed, might provide some regulatory clarity for digital assets.
Since they became popular a few years ago, digital assets were deemed securities by the Security and Exchange Commission. This means they need to be sold only through registered dealers.
This also results in the Internal Revenue Service ruling that each transaction is a taxable event meaning people have to claim all gains and losses when converting from one currency to another.
It must be stated that any decision is California does not hold any national weight. What it does do is provide an example, coming from the largest state and home to Silicon Valley.
In question is the Howey Test, which the SEC uses as a guideline for what qualifies as a security and what does not. While any ruling in California will not hold legal weight, the Feds often look to the state for guidance on technical matters.
Under this scenario, the state is updating the Howey Test for the modern age.
“Any changes to the software code underlying that asset may be made by network participants. Voting rights over the functioning of the network are conferred to each holder of the asset.”
This provides greater flexibility when looking at digital assets. It helps to alter the third party work aspect of the Howey Test.
Last year, Wyoming took the initiative in establishing regulation for digital assets. The case there was the same as California,it has no legal implications at the federal level.
A lack of regulatory clarity is often pointed to the reason why blockchain and cryptocurrency development is stalled. Many feel the United States is already handing the throne to the likes of China who is far more aggressive in their embracing of the newer technologies.
Will this be the stimulus that the Federal Government needs to actually issue clear guidelines for cryptocurrency?
It first needs to become law in California.
One step at a time.