Montana Separates Utility Tokens From Security Tokens

Wilfred Michael 

Wilfred Michael

News reporter

24 May 2019,
Montana Separates Utility Tokens From Security Tokens

The U.S State of Montana has joined Colorado as one of the regions in the country providing legislation that separates cryptocurrencies that serve as utility tokens from those that serve as security tokens.

On May 8, Montana’s Governor, Steve Bullock signed into law House Bill 584 which proposes the new provisions, thus, making the State a desirable location for crypto startups who wish to raise funds through security tokens.

The bill with the title “Generally revise laws relating to cryptocurrency” was sponsored by Democrat Rep. Shane Morigeau and passed its first and second reading in February. Following the approval earlier this month, the bill will go into effect on July 1, 2019.

Overview of Montana’s New Crypto Law

The new regulations define utility tokens as cryptocurrencies that primarily serves a "consumptive purpose." It defines the consumptive purpose as meaning that token buyers can use it to gain access to goods and services or other content provided by the issuer.

Before such an issuance, however, the project must file a request with the States securities commission and take care not to market the token to potential buyers as an investment or speculative tool.

Another primary requirement stipulated by the law which also reported in the case of Colorado includes the fact that the initial buyers of the token cannot resale it until the consumptive purpose for which they bought the token becomes available.

For the project, the law requires that it releases the consumptive purpose of the utility token within 180 days after transferring the token to buyers.

In another report in March, we mentioned that lawmakers in another U.S State, Rhode Island launched an effort to also exempt some cryptocurrencies from the state’s securities law in the same manner as Montana did.

It is worth noting, however, that the legislation that lawmakers in these States introduce, only applies to token sales and issuance within their respective jurisdictions. For this reason, the “2019 Digital Taxonomy Act” introduced by U.S Congressman Warren Davidson and other lawmakers represents the likely hope for the possible introduction of such legislation at the Federal level.

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