Cryptocurrencies are finally catching the attention of Congress. Last month, Reps. Darren Soto (D-Fla.) and Warren Davidson (R-Ohio) introduced a pair of bills aimed at addressing price manipulation as well as finding opportunities to promote U.S. competitiveness in the industry. The same lawmakers introduced the Token Taxonomy Act in late 2018. This spike in legislation is also mirrored by some major companies approaching crypto implementation.
For instance, in April 2018, retail giant Amazon won a patent to combine data feeds such as bitcoin transactions. Weeks later, the company launched development templates for blockchain applications such as cryptoassets. And, Amazon is by no means the latest entrant into the crypto space. In fact, JP Morgan recently announced the launch of its “JPM Coin.”
A “stable coin” — because its value is pegged to the U.S. dollar — the cryptocurrency would facilitate rapid international payment settlements. And other crypto developers have already made incredible strides toward the same goal — like U.S.-based Ripple, which has partnered with banks across the globe to provide real-time global financial transactions. Fast forward to May 2019 and it has been reported that even Facebook is working to release a stable coin, backed by the U.S. dollar, to create a global payments system right within their messaging apps.
Clearly, the antiquated SWIFT payment system could soon be rendered obsolete by these faster, more seamless options.
Before any pervasive adoption happens, one major industry issue will require resolution: regulation. Particularly in the United States, a lack of regulatory clarity — created by haphazard decisions on the part of the Securities and Exchange Commission coupled with varying degrees of state-based guidelines — has left companies of all sizes with no indication as to how their products or other innovations will be governed on the marketplace.
The emergence of “utility tokens” makes the possibility of true cryptocurrency integration more concrete — and the importance of getting any regulation right that much more pressing. Utility tokens like XRP are tools for business solutions like Ripple’s, as opposed to the more speculative digital assets like bitcoin. Unlike debt, equity or other financial asset classes, utility tokens do not represent an investment and, as such, are not securities. Given the numerous benefits of utility tokens, that could very well be the form that an Amazon token would take in the near future.
Unfortunately, some bad actors have latched onto the potential of utility tokens in order to further illegitimate scams. But, we shouldn’t penalize the whole market for these bad actors though their actions have hurt this burgeoning market enough. So, instead of implementing suffocating new regulations or haphazardly enforcing outmoded regulation, the SEC should consider creating a new guiding framework that provides enough certainty for entrepreneurs to pursue their products while not stifling innovation with overbearing administrative requirements.
This would send a signal to investors that the ventures they are looking at are actually worth funding. It’s essential that authorities resist the easy path toward over-regulation and uneven enforcement, as some have suggested like proposals to apply the SEC’s “Howey test” in determining whether currencies are securities.
To unlock the full potential of these innovations, we need to stop applying old laws. Wyoming passed a law in 2018 defining utility tokens as a new asset class and taking additional steps to create opportunities in the state.
Since the Wyoming legislature finished its annual 20-day session in March, two or three crypto-related companies have registered there each day, says state Rep. Tyler Lindholm. The part-time lawmaker, cattle rancher, electrician and firefighter says the influx in registration and filing fees alone would bring loads of fresh cash into the state, where mining and energy primarily drive the economy. Backers expect the payoff to be even bigger as companies set up offices in the state.
In other notable developments, the SEC recently issued its crypto token guidance, outlining how and when these cryptocurrencies may fall under a securities classification. This is an important first step toward regulation, but the guidance is not legally binding, and thus will not fully address lingering concerns among the industry.
These early examples demonstrate there’s a viable path toward commonsense regulation that benefits developers and investors alike. A recent poll found that “43 percent of Millennial online traders trust crypto exchanges more than the U.S. stock exchanges,” suggesting that cryptoassets could truly become the new normal for future generations.
Officials should reach a consensus at the federal level to even the playing field across the country and usher in a new era of productivity. And, regulators should look to be on the cutting edge of this movement instead of missing the growth of this new industry.