A week ago, I posted for the first time about virtual currency; today’s emails bring an analysis by Securities Law guru Jim Hamilton describing a new bi-partisan (is that still a word?) bill introduced in the House: the Token Taxonomy Act.  It is clear that virtual currency is now mainstreamed for good or ill, and has been given definitional reality and a handful of regulatory benefits under both the securities laws and the tax code.  Per the bill:

Virtual currency tokens are a “representation of economic, proprietary, or access rights that is stored in a computer-readable form.”

When first sold, tokens may appear to be a security.  The SEC recently  agreed in one case to cure the illegally unregistered issuance of tokens provided the parties issuing the tokens agree to stop sales and return proceeds if notified by the SEC that issuance violated the federal securities laws. The bill adopts this approach and gives developers 90 days after SEC notice to take such action.

Further, tokens starting out as a security lose that status under the bill, if they become a functioning network using blockchain, provided they have not become a financial interest in a given company and can be traded without an intermediate custodian.

But wait, there’s more!  The Tax Act narrowed like-kind tax-free exchanges to apply only to exchanges of realty. This bill expands tax-free treatment to exchanges of virtual currency.  And, the first $600 of gain is excluded from income (indexed to inflation).

And the prohibition of placing collectibles into IRAs is clarified to permit IRAs to own virtual currency.

Money has always been funny.  Currency has no value unless everyone adopts the fiction that it in fact will be afforded value in the marketplace.  Virtual currency now has a level playing field on which to attempt to build a broad base for such a fiction.  A palpable but small number of players already are believers.  Let the games begin….