Coinbase CEO backs cryptocurrency bill in California

Brian Armstrong, the CEO of major US crypto exchange Coinbase, has endorsed a new proposal filed by lawmakers in California that aims to exempt some digital assets from being classified as securities.

“This would be huge for California if it happens - ensuring the future of finance is built on the west coast,” Armstrong tweeted on Friday.

Many cryptocurrency startups are facing problems with regulators as their tokens could be potentially classified as securities, according to the Howey Test—a method created by the Supreme Court for determining whether certain transactions qualify as "investment contracts."

Since securities are strictly regulated and are required to be registered accordingly—while digital assets are typically unregistered, the SEC has deemed many cryptocurrencies as unregistered securities. And issuers of these securities have had to pay the price.

Block.one paid $24 million over the EOS ICO, Enigma paid $500,000 for its ICO and Veritasium paid $1 million for its ICO. Another high-profile example is the ongoing legal battle between the US Securities and Exchange Commission and Telegram Open Network, which effectively has put the $1.7 billion TON project on hold.

“So many startups are struggling with this right now - the current securities laws are well intentioned, but stifling a lot of innovation right now,” Armstrong said.

According to the new proposal in California, if an asset’s profits are not fully dependent on the actions and management of third parties, it should not be classified as a security.

“This bill would create an exception from the above definition by providing that a digital asset meeting specified criteria is presumptively not an investment contract within the meaning of a “security.” The bill would allow that presumption to be rebutted upon good cause shown by clear and convincing evidence by the Commissioner of Business Oversight, as specified,” the proposal states.

If approved, the new definition will help many startups that are currently “struggling” in the crypto sphere, Armstrong noted. And with many layoffs across the board, it’s about time.