Crypto Regulation Update — April 2019

This update is brought to you by Bridge Protocol (BRDG) as part of a series on cryptocurrency regulations.

Bridge is a RegTech company specializing in identity services and compliance for Know-Your-Customer (KYC), Anti-Money-Laundering (AML) and more on the blockchain.

Read last month’s update here.

United States

  1. Jay Clayton, Chairman of the Securities and Exchange Commission (SEC) said that he agrees with the Divisions Head of Corporate Finance, William Hinman that Ethereum (ETH) may not be a security.

In a letter, Jay said that he agreed with William’s analysis when a crypto does not represent an investment contract or a security.

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract. If, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

2. Help Wanted! The Securities and Exchange Commission (SEC) is looking for a crypto mogul with a law background. CoinDesk reported this morning that the SEC is on the lookout for a qualified crypto attorney to help lead the Commission’s Division of Trading and Markets on all things crypto and “digital asset securities.”

We reviewed the job listing and it is real.

The position will also serve as the face of the SEC’s crypto policymaking — the “point of contact” for other regulatory agencies, blockchain startups, and the general public.

The new role will also lead on the burning topics of the industry; like what does “sufficiently decentralized” mean and is “XRP a Security?”

3. Vanbex Blockchain and ICO Consultancy Under Fraud Investigation and Civil lawsuit. One of the larger agencies during the Initial Coin Offering (ICO) rush, Vanbex is dealing with fraud allegations from the Royal Canadian Mounted Police (RCMP).

They are also dealing with tax evasion.

On top of this, they have been battling a lawsuit in California, claiming they billed for consultancy and token sale services they never delivered.

The team is behind successful projects like Etherparty (FUEL) token, which promised significant returns by design of the ecosystem. Reportedly, the company’s assets have been frozen during the ongoing investigation.

4. Crypto Founder Blames SEC for “Starving Innovation” in the United States. Founder of Project Pillar, David Siegel, speaks on issues with regulatory uncertainty and paints himself to be a “regulatory refugee” from the United States in a recent video.

“This Crypto Winter is the death of an era. For about 18 months between January 2017 and August 2018, open-source projects — smart people with no other fundraising opportunities — could build infrastructure for a new century of progress, and now that window is closed, probably forever.”

Due to the uncertainty, their team decided to not list on any exchanges to many of their communities protest. Though David believes this regulatory clamp-down has sent the ICO market into the “toilet,” he remains hopeful. Projects are still continuing and the ones that will be successful will shine brighter than ever.

5. ICO Funding is now 58 Times Less than it was 1 Year Ago. On March 31st 2019, the Wall Street Journal (WSJ) published analysis on the current state of funding via Initial Coin Offerings (ICOs). Using data from ICO analytics website TokenData, the report provided factual findings to demonstrate precisely how ICO funding has sharply dropped throughout the last year.

Looking at the numbers; approximately $118 million was raised in Q1 2019, while $6.9 billion was raised in Q1 of 2018.

The report also states how blockchain attorney and consultant Joshua Ashley Klayman has described that while ICOs may entirely disappear, the market for security tokens won’t.

5.Former CFTC chairman calls on Congress to strengthen crypto regulation in recent report. “Congress needs to fix this by creating regulatory oversight of the cash market for crypto-assets, and the trading platforms and other intermediaries that operate in that market,” said Massad, who led the CFTC from 2014 to 2017.

“Either the SEC or the CFTC is competent to regulate this area if given the power; it would be inefficient to create a new agency. I recommend making the SEC the lead agency.”

Timothy Massad seems to think the SEC should be given the power to create new clearer rules, approved by Congress of course. Though just a yellow-paper, it may still end up on the desk of some Congressional members.

WorldWide

  1. China Says ICOs And STOs Are Solicited Illegal Financial Activities, Involvement In Such Activities Will Be Severely Punished.

The Notice reads:

The value of trading speculation has been lucrative. Using the names of “research” and “forum” to promote “ICO” and “IEO” , “STO”, “stable currency”, “integral currency”, “digital currency”, etc., in order to carry out training, project promotion, financing transactions and other forms of online and offline activities. Such activities are not really based on blockchain technology, but take the opportunity to speculate on the concept of blockchain, which seriously disrupts the normal financial and economic order and brings social risks.

2. China Securities and Futures Commissions describes the rules around securities and applies this to ICOs and STOs; says they should only be available to those with $1m worth or higher.

3. Bittrex Exchanges Cancel RAID Token Sale at Final Hour. Cryptocurrency exchange Bittrex said it canceled an “initial exchange offering” (IEO) just hours before it was set to launch. Bittrex said it called off the sale after learning that the issuer’s strategic partnership with an e-gaming data analytics company OP.GG had been abruptly terminated.

“RAID Project Team decided that it would not be right to proceed as scheduled on March 15 with Bittrex IEO due to the current changes. Therefore, after a discussion with Bittrex, RAID Team came to a final decision to not proceed with IEO.”

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