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New Bill Would Presume That Digital Assets Are Not Securities in California


New legislation in California may help establish definitions of digital assets as securities, though nationwide impact is uncertain.

Per new updates to a bill to amend California’s securities law introduced in the state’s legislative body on May 5, the largest economy in the United States and the world’s tech hub may be providing new clarity to crypto owners.

Formalizing the Howey Test for crypto?

Updates to the definition of what constitutes a security include: “Investment contract, except any digital asset that meets one of the following criteria is presumptively not an investment contract.”

The criteria named are more or less a line-reading of the Howey Test — the federal metric for assessing whether an asset qualifies as an investment contract — as translated for digital assets. The Howey Test says:

“For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

In defining what keeps a digital asset from that last qualifier of the work of a third party, the new California bill says:

“Any changes to the software code underlying that asset may be made by network participants. Voting rights over the functioning of the network are conferred to each holder of the asset.”

The bill’s history and potential impact

The bill comes from California Assembly Majority Leader Ian Calderon. Calderon initially introduced his bill to update the securities law in February. The new updates, however, hone in on the role of crypto. 

While the federal Securities and Exchange Commission has been very active in policing crypto, industry players have consistently objected to having little basis to confirm whether or not their tokens are securities. 

An office of the SEC issued guidance on the subject last year, but that guidance did not change any laws. Though some federal legislators have tried to make securities regulation clearer for crypto, nothing has passed. 

The SEC holds sway nationally. Though the United States looks to California as a critical testbed for new tech policy, digital assets are quick to jump national borders. It’s hard to imagine a revolutionary initial coin offering that does not leave the borders of California. However, such updates may be indicative of how the SEC’s current guidance will ultimately translate to federal law.

Cointelegraph reached out to Member Calderon’s staff for comment but had received no response as of press time. This article will be updated with new information should it come in.

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