Legitimacy of Initial Coin Offerings and Crypto-Exchanges

Disclaimer: this is not a legal advice but only the personal opinion of the editor of FinTelegram. Please consult your lawyer in case of investments into crypto-assets such as cryptographic tokens or coins.

Regulatory Actions against ICOs and Crypto-Exchanges

Severe regulatory actions against ICOs and crypto-exchanges have been taken by the SEC (U.S.) and other regulators worldwide over the last couple of weeks. Those actions have not yet been fully digested by the crypto-scene but its pretty clear to everybody within this industry that the “Go-Go” times of the early crypto-age are over.

The U.S. regulator SEC made it pretty clear that it regards tokens that are issued in ICOs as securities. Hence, issuers of tokens (the ICO promoters) need to register with the SEC and comply with the regulatory framework. Moreover, because cryptographic tokens and coins are considered securities crypto-exchanges need to register with the SEC which is a complicated and expensive venture. The SEC called the crypto-exchangesPotentially Unlawful Online Platforms for Trading Digital Assets“.

The last decision came in just a few days ago. The state of South Carolina (US) issued an order that crypto-mining contracts issued by cloud miners or mining pools are considered securities. Consequently, Cloud miners and mining pools seeking investors for their ventures need to register and receive permission to do so. This means that “mining”, i.e. the creation of cryptocurrencies is subject to regulation too which closes the regulatory “crypto-loop”.

Closing Down of Cryto-Exchanges Ante Portas

We can be sure that most of the crypto-exchanges today will not be able to meet regulatory standards and will have to close down. We forecast that this will be bad newsFinally, if you are a token holder or token trader in an Eastern European country you may not be allowed to register with a regulated U.S. or EU crypto-exchange (for political reasons).

With tokens that are considered securities and crypto-exchanges that may be forced to close down in the near future, ICOs are no longer an attractive space for investors. If crypto-exchanges are starting to close down investors will be locked into their investors. ICO investors need those crypto-exchanges to trade with their tokens.

Investors may be locked into their investments

In a nutshell: we doubt that the unregistered (unlicensed) token generating and trading business as we know it today may be legitimate in the very near future. This, in turn, make most ICO investment opportunities sort of toxic. We expect that a new generation of regulated ICOs issuing security tokens that can be traded on regulated exchanges will arise sometime in the future. Investors should wait until then and stay put for now.