Colorado Senate Votes Down Cryptocurrency Bill
The draft aimed to distinguish utility tokens from securities.
The Colorado state Senate has rejected a cryptocurrency bill that could exempt utility tokens from regulation as a last minute swing vote put an end to the initiative.
“We usually come together to create more opportunities for Colorado companies and startups. In this case, this was an epic fail for those who chose not to support it,” the Republican senator Tim Neville (R-Littleton), one of the draft co-sponsors, said after the bill was scrapped on Wednesday. Neville presented the utility exemption as an important step for businesses, particularly the small firms.
“Virtual Currency Exemption Money Transmitters Act” aims to distinguish utility tokens from investment ones. The bill introduces the term “open blockchain token”: a digital unit that is used as a reward in the mining process or as part of a token-base membership. Tokens are not securities if they:
1. have not been marketed by the developer or seller as an investment;
2. are exchangeable for goods or services;
3. have not been entered into a repurchase agreement, or an agreement to locate a buyer, by the developer or seller of the token.
The debate that included only three Republican co-sponsors of the bill, lasted a few minutes without any questions. Sen. Jack Tate (R- Centennial) compared the utility token to gold saying that as gold is an asset, utility tokens have “asset value for different applications” such as encrypting data for consumer protection. Tate argued that defining the open blockhain tokens as securities could batter the emerging Distributed Ledger Technology (DLT) industry:
“We have amended the bill to be sure these are not securities and we don’t want them to be securities because if some [asset] is registered as a security, the legal cost, associated with this, are astronomical,” Sen. Jack Tate told while presenting Senate amendments.
Window inside Colorado Senate Chambers.
Republican Party (GOP) controls the Senate but the utility token bill is written by lawmakers from the GOP and the Democratic party. Last week, the draft was passed in the Democratic-controlled House, the lower chamber, by overwhelmingly bipartisan support:
“The general assembly declares that virtual currency is a new and emerging technology with global implications. As a result, it is of great importance to the state of Colorado for such technology to be fully examined and defined”, the House revised Section 1 of the bill states.
At the Wednesday vote, however, Lucia Guzman (D-Denver) changed her thoughts when she understood that Attorney General Cynthia Coffman is against the utility token exemption from securities.
“These are new ideas and possibly good ideas, … but I’m not comfortable with it,” Guzman said as quoted by Denver Post.
Local blockchain company Filament has worked with lawmakers to support passing the bill, the firm announced in a press-release before the final vote:
“Filament worked with Senators Lambert and Williams and Representatives Ginal and Rankin in strong support of the legislation, providing a safe regulatory environment for local businesses and organizations by preventing cities and counties in Colorado from imposing license requirements, fees, or incidental taxes on the use of distributed ledger technology, including blockchain,” Filament explained.
US regulators and tokens
Bill co-sponsor Tim Neville gave several examples that utility tokens are not securities, including the restaurant review application Muchee which offers “autonomous membership that you actually own”. Munchee`s Initial Coin Offering (ICO) was halted by US Securities and Exchange Commission (SEC) for securities violations. The company wanted to raise capital by issuing own tokens but refunded USD 15 million from token sale after the SEC order.
The attempt to distinguish utility tokens comes in the mid of debates between US regulators and lawmakers about the exact definition of crypto assets: as securities or commodities. This distinction should make it clear which authority will regulate them. The US Commodity Futures Trading Commission (CFTC) is responsible for futures and options markets, while the Securities and Exchange Commission (SEC) enforces securities laws concerning stock exchanges.
Last month, former CFTC Chairman Gary Gensler said that Ripple (XRP) and Ethereum (ETH) should be viewed as securities unlike Bitcoin (BTC). Under US legislation, if assets draw profit expectations based on a third party activity, they should be regulated as securities.
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