What if the SEC Regulated ICOs?
The US Securities and Exchange Commission (SEC) has sent dozens of subpoenas and requests for information to technology companies and advisors involved in the cryptocurrency market.
Requests for information are related to the structure of sale and presale of initial offers of currencies (ICOs), by means of which a company can be financed by issuing a cryptocurrency.
These types of operations, currently, are not subject to the same controls that can occur in an IPO in the traditional way, and the SEC has suggested recently that many of them could violate the law.
So we ask ourselves: Why does the SEC, as a regulatory body, want to regulate ICOs that can not be regulated in principle?
Future tokens can be subject to financial laws
ICOs are a way to raise money that is halfway between crowdfunding and the exit of a company on the Stock Exchange. Recently, the industry has warned of impending SEC action. Therefore, it is about generating a quantity of tokens that are sold in exchange for cryptocurrencies.
These tokens that are sold in exchange for cryptocurrencies or national currencies, are used to buy goods or services that the company that the company in question will offer, or as an exchange currency.
The SEC is analyzing simple agreements for future tokens (SAFTs) that allow large investors to buy the right to the tokens of an ICO even before the issue is made. That is, these rights can be commercialized, so they can be classified as securities and subject to current financial laws.
The SEC tries to dissuade companies with fundraising plans through ICOs
The SEC has issued multiple warnings on many occasions to urge users and investors of cryptocurrencies to be cautious with the ICOs that lack legal aspects, however attractive and convincing they may seem.
The SEC thinks that there are many who take advantage of the characteristics of Blockchain’s anonymity, in addition to the euphoria that exists in the public offerings of cryptocurrencies in the market, in order to create scams.
Therefore, the SEC has been adopting measures, including the direct contact with the promoting agencies of the ICOs. As a result, many of them have withdrawn their offers from the market.
The SEC directly contacts the people behind the individual ICOs in activity. This contact has shown results, since several companies with fundraising plans through ICOs have withdrawn following the contact of the SEC.
Due to the nature of the ICOs, the SEC can register them
The principle of the ICOs is to collect funds publicly for a specific project, through a series of conditions, whereby the company that presents the fundraising campaign proposes to the public the sale of a future digital currency with which it would operate in a certain economic ecosystem of exchange of goods and services.
These digital currencies will be placed in exchanges in a secondary market, where they can experience a revaluation through the effect of supply and demand. For this reason, the SEC wants to consider them as values that must be controlled under the laws to verify their operation.
Due to this effective functional reality of the consequences of ICOs, the SEC considers that all ICOs must be registered before them as a regulatory body.
ICOs should be analyzed like any other investment
ICOs continue to be produced in large quantities, and this will continue to be the case, given the alternative difficult conditions for obtaining financing for projects that only banks can finance, and in a much more restricted and limited way.
Clearly, all ICOs are not scams, and many good projects are being driven through this funding process. However, the risk of fraud is high.
ICOs pose a problem for regulated organisms. They can be structured in any country that has not been banned. The tokens are distributed anonymously over the Internet. From a legal point of view, it is difficult to determine where the transaction occurs.
It may be in Gibraltar, where the ICO is structured, in London, where the issuing company is based; or in the US, where the buyer of the tokens resides.
For this reason, it is advisable to study in detail the characteristics of the companies that are behind the ICOs, their viability, verify actual contacts, social network and, in particular, one should analyze the movement in the crypto community.
It is not the first time that the SEC has taken measures against ICOs
In 2017, more than $4.4 billion were collected through ICOs around the world for the sale of these new cryptocurrencies. Despite the significant decreases in bitcoin, the number and size of ICOs have been rising in 2018. In January, 1.2 billion dollars were raised.
It is not the first time that the SEC has taken measures against ICOs. In January, the SEC warned of the risks of investing in cryptocurrencies, since they consider that many initial cryptocurrency bidders and other business participants are not following the laws.
Cryptocurrencies are not used to replace money. They do not consider it a good deposit of value or a stable unit of account. No ICO has been registered, authorized or verified by any body in the US.
Even so, there are at least 26 companies that have set up their projects with ICOs or plan to do so.
We must bear in mind that these are projects based on a vision of online decentralized services, where users interact with each other without the need for an authority that functions as an intermediary. Be careful my friends.