cryptocurrency, bitcoin, ethereum, crypto
The digital asset industry is experiencing increased regulatory scrutiny.
For example, Jay Clayton, Chairman of the Securities and Exchange Commission (“SEC”) bluntly said in his Congressional testimony: “I believe every ICO I’ve seen is a security.”
The upside of this attention is that you should want the Bitconnects of the world gutted by regulators.
The downside is blockchain-based businesses need to start treating their native cryptoassets as securities. Even tokens created pursuant to a SAFT aren’t likely safe based on recent SEC stances and statements.
As a result, you will likely see digital asset issuers increasingly relying on securities law exemptions.
One option is for ICOs that wish to be compliant is to qualify as an exempt securities offering under Regulation Crowdfunding (“Reg CF”). Indeed, some ICOs, like Indeco, have already used this option since late 2017.
Reg CF Features
The unique feature of Reg CF, compared to other security exemptions, is that the offering must be done through crowdfunding portal that is registered as a broker-dealer with the SEC and the Financial Industry Regulatory Authority ("FINRA"). Typically, this is a platform like Indiegogo or Kickstarter.
The key pros and cons of Reg CF that ICOs might consider are:
Based on the limits an individual investor can invest, you can see Reg CF is geared more at getting small investments from a large number of people.
This contrasts with traditional exemptions like Reg D, that restrict who can invest to high-net worth individuals, and are geared at getting large investments from a small number of people.
Given the relatively low limit of $1m that issuers can raise under Reg CF, and that the standard ICO now can raise much more than that, Reg CF isn’t ideal for ICOs that want to be compliant with security laws.
Have any thoughts or comments? You should let us know in the comments.
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