ICOs and GOV regulations
As you may know, an initial coin offering (ICO) operates in a similar manner as an IPO in that it is a method for companies to raise finances from the general public. In an ICO, which can last from a couple of hours to several weeks, companies invite individuals to purchase tokens (also known as digital coins) in order to fund their projects.
Prior to regulations, both sellers and buyers of cryptocurrency remained anonymous, their transactions were usually transparent and were transferred at no cost. As cryptocurrency soon became quite popular among many tech businesses, it gave them the opportunity to transfer huge amounts of money overseas making it a cheaper option to banks.
There have been a string of recent developments on the cryptocurrency front, these are discussed below.
US SEC Ruling
The US SEC shook up the so called red-hot market for ICOs by formally announcing that many of these tokens are, in fact, securities, which makes them subject to the regulations of the agency. This is a huge development especially considering the recent mania of ICOs in which several small companies raised hundreds of millions of dollars, in numerous cases, from average investors.
Skeptics of ICOs have warned for a long time that, in most cases, the tokens or coins offered for sale by companies are just new types of shares. This means that offering them to the public without appropriate licenses violates several federal securities laws. This is the reason SEC had to get involved and the agency stepped in by ruling that the tokens are indeed securities.
Subsequent to this ruling, the price of Ethereum tokens, (called ethers) used in several ICOs, dropped by nearly 10%. However, it is not clear yet how much of the drop is linked to the agency’s ruling because it may be a reflection of the cryptocurrency’s intrinsic volatility. It is also not clear if this SEC ruling will cool the ICO market or cause cryptocurrency companies to restrict the coin sales outside the U.S.
In light of the specific circumstances and facts, the SEC has decided against bringing charges, in this regard, or making findings of violations against the companies in its report. The agency’s current goal is to caution the market participants and industry. The SEC has made it clear that federal securities laws are applicable to entities that sell or offer securities in the US, irrespective of whether the entity issuing the securities is a decentralized autonomous organization or conventional company, and also irrespective of whether these securities are bought with U.S. dollars or any virtual currency.
As suggested by various experts in the industry, this ruling is likely to be the first shoe that drops and more is likely to follow. In the next couple of weeks or months, the agency is likely to come up with and announce more in-depth guidelines and procedures along with stringent enforcement proceedings against a few of the more fly-by-night ICOs. The SEC has posted its bulletin as well to warn investors and market participants to be vigilant and careful when deciding to invest in the securities.
In the broader context, though, the ruling of the agency is not likely to have a significant effect on the overall development of this relatively new blockchain technology, which according to many experts and analysts is poised to become probably the most disruptive and revolutionary software innovation in decades.
China’s ICO Ban
China recently banned ICO offerings in the country. However, it does not necessarily mean that Chinese regulators want to slam their doors on the fintech techies in the country, including a slew of cryptocurrency entities that operate both in its mainland and Hong Kong.
The ICO market in China, especially in the mainland, is unregulated to a great extent and is rife with scams. Therefore, the decision to shutdown new ICO offerings was not surprising at all, according to industry experts. This ban will hurt local developers the most and they might have to resort to other avenues for raising virtual funds to support their start-up projects in the new digital world.
In contrast, others like the majority of Bitcoin miners may need to look out for cryptocurrency watchdogs in Beijing because hiding warehouses filled with laptops trading infamous virtual currencies will not be an easy feat, especially in case the Chinese government seeks further or additional crack downs that extend the ICO marketplace.
Experts have long anticipated more stringency in cryptocurrencies and ICO regulations in China. The Chinese government considers the notion of a decentralized economic system as one of the biggest threats to the current regime. However, effective regulations and more attention from the government can, to a great extent, help in cleaning up the ICO market from notorious scammers.
In addition, industry experts in China expect that there will a decrease in the number of teams and organizations planning fresh projects via ICO mechanisms in the near future. Organizations that are likely to stay in the market are expected to be the stronger and more serious companies, while the others may find it hard to stick around.
