Ever since the cryptocurrencies and their underlying technology started gaining momentum, the governments and their regulatory arms have been working round the clock, finding ways to bring them under the regulatory purview. The SEC might have encountered some progress in this regard.
The rising popularity of ICOs as an effective fundraising method has woken up the Securities and Exchange Commission (SEC), which has designated the digital tokens as securities.
The recent SEC announcement is becoming a cause of concern for many players in the crypto-industry as they prepare to launch their own ICOs or have already done so in the past. The regulatory body’s report was a result of an investigation carried into the controversial Decentralized Autonomous Organization (DAO), built on top of the Ethereum blockchain.
The DAO debacle involved the theft of a large number of Ethereum tokens after someone decided to exploit a flaw in the system. Even though most of the stolen Ether were recovered following the introduction of a hard fork, the platform couldn’t avoid a legal fallout.
The SEC’s report on digital tokens states that the virtual coins or tokens could be considered as securities, making them subject to the federal securities laws. According to the securities laws, any entity raising funds through an IPO (in this case, an ICO) should comply with the necessary disclosure requirements. It ensures that the investors are well informed about the companies or the platforms in which they are investing in, thus protecting their financial interests.
According to reports, the SEC has also made it clear that the token sales during the ICOs don’t qualify as crowdfunding. The regulatory body has stated that the Ethereum DAO campaign has violated several regulations and even if the ICO were to be referred to as a crowdfunding campaign, the platform seems to have failed to register as a broker-dealer or register the website with the regulators.
There are speculations that the SEC’s report may have a considerable impact on the ICO market, at least in the United States. However, these issues may not affect the industry on a global scale, as those who are not in the United States will continue to create and launch new ICOs.
There have been few highly successful ICOs in the past, raking in millions of dollars and there will be more in the near future as well. However, the impact of SEC report on participation in the ICOs by Americans is yet to become visible.
Ref: Fortune | Image: NewsBTC