The ‘Token Taxonomy Act 2018’ was introduced on 20 December 2018 by Reps. Warren Davidson and Darren Soto. The introduction of the invoice aims to exempt crypto assets from being included as securities through the amendment of the Securities Act of 1933 and Securities Exchange Act of 1934.

Earlier in September 2018, a Congressional ‘Crypto Roundtable’ was held by Davidson, which was attended by representatives from large Wall Street firms and crypto-related companies. During the meeting, it was noted that current regulations were not well suited for crypto assets nor provided sufficient regulatory clarity for initial coin offerings (ICOs).

By the end of the year, Davidson announced that there were plans to create a separate ‘asset class’ for crypto assets. He stated that if ICOs were classified as another kind of ‘product’ instead of a type of security, the federal government would be able to regulate the digital asset more easily and effectively.

The current bill introduced by the two congressmen in the House of Representatives would officially achieve this separation of digital assets from securities. Digital assets were defined as ‘digital tokens’, which are digital units created through crypto mining or pre-mining and abide by the rules of blockchain technology. Additionally, ‘digital tokens’ are not tokens representing the financial interest of a company, which includes ownership, debt interest or revenue share.

The bill also mentioned that the Securities and Exchange Commission should “enact certain regulatory changes regarding digital units secured through public key cryptography” and “adjust taxation of virtual currencies held in individual retirement accounts”. Other than that, tax exemptions should also be allowed for exchanged between different cryptocurrencies and profits gained through the exchange or sale of virtual currency in the forms other than cash.

The document further wrote that regulations should be issued by the Secretary of Treasury where information regarding returns of virtual currency transactions with recognized gain or loss is provided.

Davidson explained that the bill serves as a measure to keep the crypto market alive in the U.S. With the introduction of the document, U.S. is said to be provided the required means to compete with countries which are actively promoting blockchain economy such as Singapore and Switzerland.