Regulations need to stabilize, not stifle, cryptocurrency

It seems the world awakened to cryptocurrencies only when Facebook announced its plan to launch its own digital token. But U.S. Rep. Warren Davidson, R-troy, has been on this issue for years, and he understands that long before Facebook jumped on the bandwagon, blockchain technology and cryptocurrencies have been the latest American innovation that could revolutionize the world economy. And that industry urgently needs regulatory clarity that nurtures the whole ecosystem, as well as addresses huge entrants like the social media giant.

In fact, if the United States doesn’t get regulatory clarity soon, well before cryptocurrencies scale up to mass adoption, we might lose our leadership position in this

technology. The Facebook announcement makes it an emergency.

Davidson has reintroduced the bipartisan “Token Taxonomy Act,” a bill aimed at clarifying the classification of digital assets with respect to federal securities laws. Along with that regulatory clarity, the legislation would bolster consumer protections and contribute to the development of a supportive ecosystem for the budding industry. These legislative efforts come amid numerous indications that digital assets are on the cusp of mainstream adoption and are longing for regulatory certainty.

While federal lawmakers are considering action, states across the country are taking the lead on digital asset regulation as a way to invite businesses to move into their area. The most prominent example is Wyoming, which has passed 13 blockchainfriendly laws. Wyoming’s regulatory framework firmly establishes direct property rights, ensuring that those who own cryptocurrency are protected. Additionally, Wyoming has created a regulatory “sandbox,” allowing companies to experiment with different business models unencumbered by stifling regulation.

The growing implementation of digital assets to enable faster payments provides insight into cryptocurrencies and the advantages they offer. The technology holds a range of potential benefits — from speeding up the processing of global remittances to providing financial infrastructure for traditionally unbanked communities. Add to these applications of blockchain technologies the fact that U.S. exchanges handle about 29 percent of global Bitcoin trading, and it’s increasingly clear that the U.S. is poised to be an epicenter for innovation and investment in the cryptocurrency industry.

Before those effects can be fully realized, it’s critical that the U.S. develop a comprehensive regulatory approach to cryptocurrencies. Importantly, any such regulation must include guidance as to how these new digital assets are classified. Legislation is an important start, as are regulatory guidelines like the framework recently released by the U.S. Securities and Exchange Commission.

Complicating matters are legally binding decisions and guidelines from agencies like the SEC and Commodity Futures Trading Commission that have been issued in piecemeal fashion focused on specific cryptocurrencies. While states like Florida, Wyoming and Montana have taken the lead in passing legislation, to date no overarching regulation exists in the U.S. As companies attempt to navigate the cumbersome regulatory patchwork, it slows and stifles innovation. Any federal regulatory framework must help American innovation and be “light-touch” — providing the certainty and clarity that companies and investors need while not stifling innovation or burdening companies with restrictive requirements.

Initial efforts with regard to a clear-eyed regulatory approach have already resulted in positive impacts. States like Wyoming, which have enacted sensible crypto legislation, are reaping the benefits in the form of investment, job creation and innovation. Florida is now reflecting on how it too can gain these economic benefits. Federal regulators should follow suit before other countries take the lead in creating a welcoming environment for entrepreneurs.

Simply put, American regulators need to get serious about catalyzing innovation, not stifling it. As Rep. Davidson stated, “What we need is legal framework to make it clear that if you’re launching these digital assets, we want you to do that innovation in America.” The cryptocurrency industry needs clarity to thrive, and that starts with a sound regulatory policy.