At the start of June, Brave Software raised $35 million USD in 30 seconds, selling out their Initial Coin Offering (ICO) in record time. With recent reports indicating that the United States Securities and Exchanges Commission will be taking steps toward developing regulations for ICOs, questions have surfaced as to whether or not pre-sale token distribution fundraisers are comprising the illegal sale of unregistered securities.
Brave’s BAT Pre-Sale ICO May Have Comprised the Sale of Unregistered Securities
A discussion pertaining to the legality of ICOs is overdue. With a flood of new projects entering the markets recently, developers are seemingly printing money out of thin air in the form of cryptographic tokens on a weekly basis, which are then passed onto greedy investors seeking to find the next big crypto. With ICOs raising almost half a billion USD in the last 2 years, it is unsurprising to see the SEC taking an interest in the current ICO landscape.
A recent article posted on Medium has sought to argue that Brave’s BAT pre-sale ICO and others like it may comprise the sale of unregistered securities, and are thus illegal.
When a company has completed its development and is distributing coins to investors, it can do so legally because the cryptocurrency tokens have use-value outside comprising a money commodity/expression of value, and can be considered to be app tokens. Under these circumstances shouldn’t be any legal dilemma, and the company should be free to conduct an ICO.
If a company is raising money in order to fund token development, and are pledging to distribute tokens at a future date, then such would be considered to comprise a token presale, which may be seen as selling securities under US regulations, and thus require adherence to SEC guidelines and legislation. “Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption.”
The purpose of the SEC regulations is to prevent companies from issuing tokens on the basis of a promised service or platform that is never delivered. Without such regulation, anybody could produce whatever I.O.U. they liked, and begin distributing such to investors with no intention of delivering on their end of the agreement.
For many within the cryptocurrency community, the regulatory guidance of institutions like the SEC is no longer needed. Relations between individuals are mediated through immutable smart-contracts, with judge, jury, and executioner manifested as the cold, rational laws of mathematics.
There Is Little Agreement Among Nations Upon How to Legally Classify Bitcoin and Other Major Crytocurrencies
The debate pertaining to whether or not crowdfunding conducted through token pre-sales comprises the unlawful sale of unregistered securities highlights the need for unique regulatory apparatus to be created for bitcoin and cryptocurrency – as trying to retrofit existing legislation designed for mainstream asset classes has proved to be challenging at best.
There is little agreement among nations upon how to legally classify bitcoin and other major cryptocurrencies. The unique peculiarities of bitcoin and altcoins have prompted some experts to call for the creation of a new asset class for cryptocurrency, whilst others have demanded no regulation whatsoever. The speed and dynamism with which the cryptocurrency economy has evolved poses an additional challenge to lawmakers, as does the fluidity of the cryptocurrency ecosystem.
Whatever the outcome of the growing curiosity on the part regulators regarding ICOs, it is clear that the hype and momentum surrounding many ICOs is only intensifying.
Do you think that the SEC will regulate ICOs? Share you thoughts below!
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