ICOs: A REAL OPPORTUNITY FOR EUROPE?

“Anyone who is surprised by this SEC investigation into ICOs either hasn’t been paying attention or has been entranced by greed which made them oblivious to how the financial industry works. The name alone sounds like IPO — if it walks like a duck and sounds like a duck, it’s a duck.” — Brad Garlinghouse, CEO of digital currency company Ripple.

On July 25th, the U.S. Securities and Exchange Commission (SEC) reminded the industry and technology disruptors that federal securities laws may apply to some of the ICO offerings.

ICOs are a new business construct: they allow an organization launching a business based on blockchain technology to raise operating funds without the regulatory constraints and requirements that are applied to a traditional underwritten IPO. More than $2B were injected into ICOs in the last 12 months alone, which is more money than what was invested into seed stage companies by VCs throughout the entire of 2016. These last figures leave a clear picture of where the next wave of disruption is happening, and where it will most likely continue to develop. Moreover, seeing as the SEC has been the first governmental institution to start enforcing regulation on ICOs, there is a fair case to be made of whether or not Europe and its tech-ecosystem could be a valid alternative to bring forward the blockchain revolution.

Having grown up in Europe, trust me when I say I’d be ecstatic to know that the “old continent” could become more competitive in attracting new foreign capital and brain power. And as it turns out, it might just be the deregulation of blockchain technologies and ICOs that gives the EU this edge — making this quite an advantageous period.

SO, WHAT IS THE REGULATORY FRAMEWORK IN EUROPE LIKE?

Although it does not yet have a clear stance on ICOs, the regulatory framework in Europe is both complex and volatile, and this should not be underestimated. Many laws are new, evolving or under ongoing reconstruction, such as MiFID II (the cornerstone piece of legislation for investment services), Prospectus Regulation (PR3) and the new Anti‑Money Laundering Directive, to name just a few. MiFID states that a transferable security is “that class of securities which is negotiable on the capital market”. Tokens issued with ICOs fall into a grey area here and become tricky to label under this definition. The EU law, therefore, would only be applicable to the extent that it can provide a general definition of “transferable securities”.

Notably, many EU states have their own well-developed legal doctrines on securities, which may differ from other member countries. And as long as a clear framework at a European Union level is missing, these local approaches will dominate. In a long-term perspective, this could lead to diverging approaches, and jurisdictional competition within the EU itself.

EUROPE’S TURN TO LEAD THE RACE?

This lack of clarity surely guarantees some competitive potential, but despite this temporarily welcoming system, there are still several hurdles that hinder the creation and prosperity of a real “Silicon Valley” in Europe. There is no denying that the EU has made sound efforts in the past decade to bridge the gap with the US in terms of nurturing innovation. However, critically speaking, there are significant friction points that still exist and that, if considered with the importance they deserve, could reveal key opportunities for growth.

CULTURE

That invisible force guiding every decision making-process. Europe has traditionally been attached to the estates culture: it is definitely attracted to innovation, but with a distant, fearful eye. Cryptocurrency represents the quintessence of the anti-estate. Until, on a cultural level, Europe isn’t prepared to embrace newness and the unknown (of technologies, of different professionals, and of workflows) with more ease, it will be difficult to build the right playing field for innovation to grow.

POLITICS

One currency, one regulatory framework, but too many distinct decision-makers. This creates confusion and slows down the operative roll-out. For fast-paced individuals and businesses this could and should represent an issue.

MARKET

A big market without customs and one currency should be a definite plus. On the other hand, going global from day one is made harder due to different tax return systems depending on where revenue is generated, and to permanent establishment obligation in order to operate (produce turnover) in different EU states.

CONCLUSIONS

A few of the above obstacles could also be said to be present in the USA, along other difficulties that entrepreneurs may face on that side of the pond. The truth is, most logistical problems can be overcome, the real challenge for Europe will be breaking through cultural barriers that are holding it back — and fast.

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