Who Is an Accredited Investor for STO? Do You Have to Be Wealthy to Participate?
Security tokens have been permanently in the crypto scene lately. The news reaches from the successful launch of the tZero trading platform to the blocking of $75 million tokens by Polymath.
While security tokens (STOs) inspire many investors, as they believe they are a more regulated and stable future, they are hated by many other investors. The opponents consider STOs a strike against most of the other investors. They argue that most people can not attend first hand at an STO.
Will security tokens lead to a more stable or less accessible future? Be the judge.
By submitting Form D in the US, which affirms that it offers an investment product only to accredited investors, it can circumvent many of the rules for a public offering. To become an accredited investor, you must have either one million dollars or an annual salary of over $200,000 a year for the past two years ($300,000 if it’s a joint tax return).
In principle, the SEC allows companies to go through a simpler regulatory process if they only offer their investment product to a more prosperous market and are likely to cause fewer market problems.
The market is ripe for security tokens
Opinions and reports from the crypto industry suggest that 2019 will be the year of security tokens. Whether companies such as Polymath and tZero or governments such as Uzbekistan, Malaysia, and Jamaica the news about the integration of security tokens heat up the mind and are present in the news. Is that more a good sign for the market in general, or can that lead to another bad side?
Awareness of technology, which is the first phase of capital raising, is slowly pervading the financial and commercial real estate offices of the world. It is expected that some stability will be more easily achieved when tokens are tied to real assets. As policymakers continue to leverage the real assets tokenization, the market will continue to grow. But that will be a slow process.
At this level, tokenization could have the biggest impact. Important companies (eg IBM, AWS) recognize this beginning gold rush and they provide the so-called “shovels” for it. High-security, enterprise-wide Blockchain infrastructure is the future, and that’s where the money is and thus the market is moving. First of all, awareness has to be created, then the resources will follow.
However, this market movement has a big disadvantage. When money goes towards security tokens, it’s just an exclusive group of investors allowed to participate in countries such as the US. This group of people who can participate in STOs is known as “Accredited Investors”.
“Accredited Investors only” means an exclusive community
Fewer than 9 million out of over 126 million households in the United States can even meet the standards to become accredited investors. Therefore, the impression arises that this is just a tactic to make the rich even richer. It’s not just the top 1%, but it’s the top 1% and some of their friends and extended cousins.
If only the top 6.5% of Americans qualify to become accredited investors, how should the rest of the population participate in STOs? As more and more projects are classified as an accredited investor only, the market size for the pool of investments is severely limited. This will significantly slow down mass adaptation.
Are there any loopholes?
While websites will not allow you to register if you lack the classification as “Accredited Investor”. However, there are some gaps.
First of all, you have noticed that it is often read “For investors outside of the United States of America”. Accredited Investor status is a purely American rule that applies only to residents of the United States. This regulation is regulated by the SEC, an agency that operates exclusively in the United States. So you can participate in most STOs if you live outside the US.
Another option is to connect with other people and start a business. To do so, you must review the rules and regulations that apply in your home country and then act accordingly to obtain the eligibility.
As we can see, the Accredited Investor arrangements, while hitting large segments of America’s population hard, will likely deter many investing in STOs. But for those in Europe or Asia, this will not have any negative effects.
If you have any further questions, you should talk to a financial adviser or solicitor who knows well the financial regulations in your area.
Author: Marko Vidrih