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Darren Soto Focuses on Cryptocurrency Regulation

December 31, 2018 - 6:00am
Warren Davidson, Darren Soto and Ted Budd
Warren Davidson, Darren Soto and Ted Budd

About to start a second term in Congress as his party readies to take control of the U.S. House, U.S. Rep. Darren Soto, D-Fla., is increasingly focusing on cryptocurrency and how it should be regulated. 

Soto is pushing a bill to exclude cryptocurrency from being classified as a security. Right before the Christmas weekend, Soto and U.S. Rep. Warren Davidson, R-Ohio, brought out the “Token Taxonomy Act. Soto’s office noted the bill will “provide light-touch regulatory certainty for businesses, entrepreneurs, and regulators in the blockchain economy” and “draws a bright line for businesses and regulators by defining a ‘digital token’ and clarifies that securities laws do not apply to companies that use blockchain once they reach their goal of becoming a functional network.” The Central Florida Democrat’s office insisted “implementing this fix will stop fraud from spreading and provide the certainty innovation needs to flourish.” 

“This bill clarifies a 1946 court case that the SEC has been using to determine what a security is and effectively makes it clear that the finished product (or oranges as it relates to the Howey Test) is no longer a security,” the sponsors noted. “Providing this much needed certainty frees the SEC to perform its vital and much needed consumer protection duties of enforcement on those who have engaged in securities fraud by making false claims or simply attempting to engage in regulatory arbitrage to circumvent securities law. 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.”

When he unveiled the bill, Davidson said the legislation will help the economy. 

“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space,” Davidson said. 

“While this legislation is a great first step, we are looking for feedback,” Soto said. “The Federal Trade Commission (FTC) has a history of policing web services, while the Commodities Futures Trading Commission (CFTC) has authority over commodity derivatives. To what extent does the jurisdiction of the FTC apply to digital tokens? Can we address this issue in this legislation or will we need subsequent legislation to effectively regulate this emerging sector?”

Davidson and Soto held roundtables and gathered input across the nation “to gather input on Congress' effort to clarify the ‘sloppy’ regulatory framework in the cryptocurrency space.”

Soto doubled down on his support of the bill late last week. 

“I am working on key bipartisan cryptocurrency legislation to protect consumers and advance this new technology,” Soto noted. “An increasing share of international business will be done using this online exchange. Thus America’s leadership on cryptocurrency will be critical to our success in the 21st Century economy!”

Earlier in the month, Soto paired up with U.S. Rep. Ted Budd, R-NC, to bring out two other bills focused on cryptocurrency. 

They unveiled the “Virtual Currency Consumer Protection Act” and the “U.S. Virtual Currency Market and Regulatory Competitiveness Act,” insisting the bills “will analyze what can be done to protect consumers from price manipulation and to ensure America remains a global leader in fostering innovation in this evolving global marketplace.”

“Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth,” Soto and Budd said in a joint statement released early in the month when they introduced the bill. “That’s why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, while also promoting an environment of innovation to maximize the potential of these technological advances. This bill will provide data on how Congress can best mitigate these risks while propelling development that benefits our economy. ”

The bills make the U.S. Commodity Futures Trading Commission (CFTC) and other regulators offer recommendations on how to ensure cryptocurrency can be protected from being manipulated. 

“The Virtual Currency Consumer Protection Act, directs the CFTC to describe aspects of how price manipulation could happen in virtual markets and then to make recommendations for regulatory changes that can improve the CFTC’s monitoring procedures in preventing price manipulation,” Soto’s office noted. 

“The U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018 directs the CFTC to conduct a comparative study of the regulation of virtual currency in other countries and then make recommendations for regulatory changes to promote competitiveness in the U.S. in the industry by providing regulatory clarity and examining alternatives for current burdensome regulations that may inhibit innovation. For examples, it asks the CFTC to clarify the virtual currencies that qualify as commodities and examine the costs and benefits of a new, optional regulatory structure that could replace the current state money transmission system,” Soto’s office added. 

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