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Coin Center Updates Its Securities Framework for Cryptocurrencies

Blockchain advocacy group Coin Center continues to believes some cryptocurrencies look like securities by law, and should be regulated as such.

Peter Van Valkenburgh, the organization’s director of research, published a new report Friday arguing that certain cryptocurrencies follow the oft-cited Howey Test and act as investment contracts. As such, he wrote, they should be treated as securities. The report updates a 2016 version, which laid out a possible framework for regulators in determining whether any given cryptocurrency should be a security according to the Howey Test.

The framework examines three variables that Valkenburgh believes are important for determining whether a cryptocurrency is a security: “distribution, decentralization and functionality.” Specifically, he says, how a token is initially distributed, how decentralized its underlying network is and what powers or rights token holders have should determine whether it is a security.

He wrote:

“We find that larger, more decentralized cryptocurrencies — e.g. bitcoin — pegged cryptocurrencies — i .e. sidechains — as well as distributed computing platforms — e.g. ethereum —do not easily fit the definition of a security and also do not present the sort of consumer risk best addressed through securities regulation. We do find, however, that some smaller, questionably marketed or designed cryptocurrencies may indeed fit that definition.”

The new version more closely examines initial coin offerings (ICOs) than the original, perhaps reflecting the fundraising method’s spike in popularity last year. ICOs raised $46 million in 2016, less than one-tenth of the more than $5 billion raised in 2017. It also provides more in-depth explanations of alt-coins and how they may fit into the framework.

Valkenburgh also notes the rise in airdrops and ERC-20 tokens, writing that “several networks, most prominently ethereum, are designed to empower their users to create further bespoke tokens ‘on top of’ the parent network. The minting and transmission of these new tokens and their use is policed and described by the consensus mechanism and blockchain of the underlying network.”

Like the previous version, Valkenburgh then outlines possible risks to investors, providing suggestions on how to protect them without hurting innovation.

House framework image via Shutterstock

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Kraken Donates $1 Million to Blockchain Advocacy Group Coin Center

There are few things the cryptocurrency community loves more than outspokenness – except, perhaps, putting your money where your mouth is.

Jesse Powell, CEO of the cryptocurrency exchange Kraken, donated $1 million to the nonprofit Coin Center on Monday night at the advocacy organization’s annual gala in New York City. Kraken also pledged to match any donation to Coin Center until the end of the month, up to $1 million.

The San Francisco-based exchange is no stranger to the regulatory minefield Coin Center strives to defuse and build bridges across.

In April, Kraken was one of 13 exchanges that received an inquiry regarding “internal controls and safeguards to protect consumer assets” from former New York Attorney General Eric Schneiderman.

Unlike many competitors, Powell refused to respond, saying his exchange can “dodge this bullet” because it left New York in 2015, spurred by what he called the state’s onerous regulatory approach.

Kraken’s donation won Powell a round of applause. Sporting a baseball cap, the long-haired maverick entrepreneur did not make any remarks, letting the donation speaking for itself.

Satoshi walks into a bar…

Almost as warmly received was the litany of cryptocurrency-themed jokes delivered by Coin Center’s director of research, Peter Van Valkenburgh.

“Fork: really a word that usually isn’t in need of translation for the average person, you may be holding one right now,” Van Valkenburgh told the audience of finely attired crypto veterans munching on their first course. He added:

“For cryptocurrency enthusiasts, this translates pretty directly to: free coins! And I’d add that, to their tax attorney, this translates to: ‘fuck.'”

Jokes aside, the theme of the night was the importance of coming together as a community to curb stifling regulation through transparency and education.

Coin Center director Jerry Brito said a representative from the nonprofit has attended every congressional hearing related to cryptocurrency since 2013.

As several cryptocurrency industry experts said earlier in the day during a panel at Consensus 2018, the current regulatory environment for lawful exchanges could be aptly described as “a mess.”

As ironic as it may seem, Brito told the audience donations like Powell’s help the community fight for “the cypherpunk dream.”

Bitcoin and dollars image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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CFTC Tech Advisors to Talk Crypto, Blockchain This Week

Blockchain technologies and cryptocurrencies will be front and center at the Commodity Futures Trading Commission’s Technology Advisory Committee meeting Wednesday, according to a newly published agenda.

The meeting’s agenda, released late Monday afternoon, outlines how the first two panels will focus on blockchain and its potential applications to derivatives markets, as well as the relevant regulations surrounding cryptocurrencies and futures markets, respectively.

The opening panel on blockchain will feature Jennifer Peve, Depository Trust and Clearing Corporation (DTCC)’s executive director for business development and fintech strategy; Charley Cooper, managing director of distributed ledger startup R3; and Dan Busca, deputy director of the CFTC’s Division of Market Oversight (DMO).

The panel, the document shows, will focus on the tech’s “potential impact on capital markets infrastructure and regulatory reporting.”

The cryptocurrency markets and regulation panel, scheduled to begin 45 minutes later, will feature Coin Center executive director Jerry Brito; Katten Muchin Rosenman LLP special counsel Gary DeWaal; trading company RGM Advisors chief executive Richard Gorelick; and DMO director Amir Zaidi.

This panel will focus on cryptocurrencies themselves, as well as futures products based on them, according to the agenda. Changes in the markets and regulations surrounding them will also be discussed.

The panels come at a time of renewed regulatory discussion in the space. A week ago, CFTC chairman J. Christopher Giancarlo testified in front of the U.S. Senate Subcommittee on Banking, Housing and Urban Affairs about the role regulations may play in future cryptocurrency markets. Giancarlo will give opening remarks alongside Commissioners Brian Quintenz and Rostin Behnam.

CFTC logo image via Mark Van Scyoc / Shutterstock

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Bitcoin Congressman Polis Legislation Abolishes Tax For US Crypto Payments Below $600

Bitcoin-friendly congressman Jared Polis has introduced legislation that could allow US citizens to pay in cryptocurrency without reporting it for tax.

The Cryptocurrency Tax Fairness Act, a bipartisan effort with Republican David Schweikert, aims to give everyone a $600 leeway to use crypto without needing to submit a tax return to the IRS later.

Bitcoin and virtual currencies are still classed as property in the US, obligating users to report any form of gains or losses on holdings each tax year, regardless of amount.

The issue is especially poignant in 2017, as the US’s largest exchange Coinbase battles the IRS in what consumers and politicians alike have criticized as an “overly broad” tax investigation.

“To keep up with modern technology, we need to remove outdated restrictions on cryptocurrencies, like Bitcoin, and other methods of digital payment,” Polis said in a press release Thursday.  

“By cutting red tape and eliminating onerous reporting requirements, it will allow cryptocurrencies to further benefit consumers and help create good jobs.”

Washington is currently home to the Blockchain Caucus, a joint initiative begun in February by Polis aiming to increase education and awareness of virtual currency among the echelons of US politics.

Commenting on the new act, Coin Center CEO Jerry Brito, who worked with Polis on the Caucus, said it would create a “level playing field.”

“We applaud Representatives Polis and Schweikert for their leadership in introducing the Cryptocurrency Tax Fairness Act, which would treat cryptocurrencies similarly to how foreign currency is now treated and relieve users from having to keep track of small personal transactions,” he said.

“Not only will this create a level playing field for digital currencies, it will also help unleash innovation on applications like micropayments, which can consist of dozens of transactions per minute and thus are difficult to square with the current law.”