A bill slowly making its way through the U.S. legislature really highlights the confusion that is inherent in cryptocurrencies, because of the pattern of U.S. regulation that defines them in the investment world.
The “token taxonomy act of 2018” was introduced by Warren Davidson (R) and Darren Soto (D) in the U.S. House of Representatives – CNBC calls it a “bipartisan” effort to change long-standing rules according to the emergence of new technologies.
This law would make digital cryptocurrencies into their own asset class, to exempt them from being treated as securities under U.S. law.
For reference, securities are investments in a company or organization, and treated in certain ways, for example, as capital gains subject to a ‘wash rule’ on dumping a loser and reinvesting within a 30-day period.
In that’s just one of the IRS rules that would be impacted by changing the categorization of cryptocurrencies under U.S. regulatory law.
These changes and clarifications are absolutely important for investors. For example, reports like this one from Marie Huillet at Cointelegraph today talk about how depending on certain changes in cryptocurrency classification, traders could simply sell and repurchase Bitcoin to save money on their taxes.
So are cryptocurrencies securities, or are they commodities? The answer lies in parsing out what these coins represent – some see them as simply an investment in the underlying company – if you’re buying Tron tokens, for example, you’re investing in Tron. If you’re buying Ethereum, your investing in operations like Consensys.
That’s a valid way to see these assets on the market, but the way these coins are set up, they are also commodities. Currencies are assets that you hold in units. In that sense, they’re not securities – they’re collateral property.
There seems to be a large gray area that’s hovering over what everybody saying about cryptocurrency classification. If the U.S. decides not to regulate cryptocurrencies as securities, Bitcoin holders and others will benefit in very concrete ways. So if you are trading for the long term, and you’re wondering whether Bitcoin will be down at the low $1200s or way back up towards its $20,000 high water mark, you’d do well to keep an eye on how U.S. regulators are responding to questions. Perhaps we’ll make the decision together about what type of financial assets cryptocurrencies are – and then we’ll move forward in a much more orderly way.