Recently the director of the SEC’s Division of Corporate Finance put out some interesting comments during the Yahoo Finance All Markets Summit regarding cryptocurrency. It was nice to see the top SEC official admit that:
…what I believe may be most exciting about distributed ledger technology – that is, the potential to share information, transfer value, and record transactions in a decentralized digital environment. Potential applications include supply chain management, intellectual property rights licensing, stock ownership transfers and countless others…
This tells me they are admitting that they can see the writing on the wall so to speak, that cryptocurrency is the future in many, many ways. The regulations for cryptocurrency ICO compliance are becoming more clear every day. The crypto tech community is preparing for a huge market disruption.
As the path is becoming less vague, and easily to travers for both issuers and investors Recently the director of the SEC’s Division of Corporate Finance put out some interesting comments during the Yahoo Finance All Markets Summit regarding cryptocurrency.
It was nice to see the top SEC official admit that This tells me they are admitting they can see the writing on the wall so to speak, that cryptocurrency is the future in many, many ways.
What This Means
SEC Offices. Image Source: nypost
The crypto community and non-crypto’s alike are taking a collective sigh of relief. The public have been spoon fed ideals that its ‘illegal’ as a ‘dark market money’ or ‘terrorist’ utility, but rather as a legitimate technology. Of course he would come short of saying that this new distributed ledger technology has the potential to eliminate modern banking as we know it.
Ironically, it is the solution to this ‘fiat token’ that is printed with an endless supply by a semi-anonymous team that calls itself the “Federal Reserve”. The neo-classical debt slavery system is coming to an end. Code is law.
He also failed to mention it’s the solution to this mysterious “Fiat” token that is printed with an endless supply by a team that calls itself the “Federal Reserve”, enforced by other non-government institutions. Casting aside the yoke of debt-slavery is what Satoshi wanted in my opinion.
The Infamous “Security” Question
Hinman went straight to the punch though and touched on how many teams have been in denial about their coin being a ‘security’ aspect in the context of raising funds in an ICO. In particular, he addresses the main question of “…whether a digital asset offered as a security can, over time, become something other than a security”.
He is referring to whether an ICO can raise funds as a utility token to avoid ICO rules, and whether they can later “over time” actually become that “something else” – evolving from what is sold initially (technically a security) into what can be over time considered a utility token.
Director Hinman goes on to utilize this question in the context of the Howey test. For those who are unfamiliar with it, he goes facts of the Howey case and it applied to securities laws. He said:
A hotel operator sold interests in a citrus grove to its guests and claimed it was selling real estate, not securities. While the transaction was recorded as a real estate sale, it also included a service contract to cultivate and harvest the oranges. The purchasers could have arranged to service the grove themselves but, in fact, most were passive, relying on the efforts of Howey-in-the-Hills Service, Inc. for a return. In articulating the test for an investment contract, the Supreme Court stressed: “Form [is] disregarded for substance and the emphasis [is] placed upon economic reality.” So the purported real estate purchase was found to be an investment contract – an investment in orange groves was in these circumstances an investment in a security.
Director Hinman goes on to utilize this question in the context of the Howey test. For those who are unfamiliar with it, he applies the analogy of it to a coin and goes on to say:
If this was a coin sold with an expectation of profit, a team can’t simply call it a real estate transaction and circumvent investement transaction laws. This is especially true while marketing to investors that they can confidently expect returns from the orange groves that exist on the real estate. The orange grove sale was an investment contract, not simply a piece of land subject to real estate transaction laws.
The coin is still a security when it is sold at the ICO level, and whether or not it provides a utility later on, or if it is marketed in a way that suggests a future return to investors from of profits of oranges ( or for masternodes in the case of cryptocurrency as an example ).
Then, because there is an expectation of the agreement providing an economic profit later on to investors, it is clearly an investment contract in the context of how the SEC is viewing crypto. And in the case of crypto, these tokens / coins sold during ICOs are securities and not utility tokens, with fundraising being subject to the rules of securities.
Hinman continues to clarify further:
For a while, some believed such labeling might, by itself, remove the transaction from the securities laws. I think people now realize labeling an investment opportunity as a coin or token does not achieve that result.
The article is very clear – its almost as though Hinman is giving a clear path and guide for future ICOs to alleviate their concerns over what type of financial instrument their coin represents and what rules apply to raising capital for it.
How This will Play Out
At Goldsmith, our agency is preparing to become the authority on ICO launches, efficient crypto compliance with these new regulations while making on-boarding for companies looking to raise capital easier and faster. We want them to be able to bring on investors easily and safely per these new laws. This in turn will give us an advantage over other firms not following this model.
Recently the Bittrex exchange delisted a bunch of coins that were a liability, with these new regulations being put in place most likely, and perhaps a threat to their status as an exchange running in the US. These models will evolve to make it easier for both investors and coin teams to properly disclose and register everything as needed and make the fundraising process efficient and easy.
Whether you are RegCF Portal or a Broker Dealer pushing no cap ICOs online, it’s our responsibility as developers and fintech firms to create a smart, safe environment for investors to invest in crypto. We have to position ourselves in parallel to provide the smartest systems and cleanest UI experiences in the market.
In turn, this will help attract more big-money investors and private investment pools onto the scene. We can measure adoption in many ways, one being amount of fiat we have flowing out banks and onto crypto exchanges in nearly every country.
We are all watching this sector transform at a furious pace. Finding the right entry point for these market disruptions will be a very profitable decision for fintech teams, issuers and investors. One goal moving forward is to maintain the crypto anarcho-capitalist roots while entering the mainstream for mass adoption in the best way.
Regulation is bound to happen to some degree, at some time. Mods in crypto largest groups know exactly the irony of regulation in this space. The top communities work hard to filter out scams and keep the new adopters safe.
Next we can see a market for KYC / and accreditation apps that make it the process easier with universal logins similar to those sites that allow login via Facebook or Google identities . As time progresses things will get easier.
It will be transparent and legitimate coins, smooth SEC-friendly ICO launches and serious crypto dev teams putting out serious crypto apps that bring in the mass adoption we’ve been waiting for.
Every day is the the future of crypto. Satoshi’s dream of trustless peer-to-per tx’s is the next evolution in money, and is one of if not the biggest market distruption of the 21st century. Expect what’s next.
Featured Image via Fotolia