Hammer Time!
The SEC has ramped up its firmness in the cryptocurrency space in what appears to be a clean-up campaign to gain control of it and the projects associated with it.
Since the hearing on cryptocurrencies in 2018, the SEC has penalized multiple start-ups and firms in what it describes as “a time of significant innovation.”
The regulatory status of popular digital assets has been a regular talking point. Bitcoin and Ethereum are not deemed securities, but others (such as XRP) still await official clarification from the SEC.
SEC Chairman Jay Clayton: “I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings… we should regulate them like we regulate securities offerings. End of story.”
Other regulatory bodies describe XRP and Ethereum as utility/currency tokens, highlighting that different authorities across the globe are also addressing the need for clarity with digital assets.
“Ether can be used as a means of ‘payment’ (exchange token) on the Ethereum platform, and can also be used to run applications (utility token). XRP has similar features.” – FCA Report, Section 2.7
A group of firms built around cryptocurrencies have come together to form a council to rate the regulatory status of digital assets in an attempt to help start-ups avoid scrutiny by regulators such as the SEC.
So far this year, the SEC has issued fines to some of the biggest players in the crypto sector. Some of them you may have heard about already!
Numerous Crypto Projects Fined; What Triggers the SEC?
Here’s some examples of companies left in the wake of the SEC’s legal investigations.
Early in 2018, the encrypted messaging application Telegram launched a record-breaking ICO, resulting in over $1 billion being raised according to documents submitted to the SEC.
Fast-forward to October 2019 and news has emerged that the SEC filed an emergency action against Telegram and its TON project for selling the GRM token as an illegal offering of a security.
“Telegram’s illegal offering (the “Offering”) had an initial stage, which took place between January and March 2018. During this stage, Telegram raised approximately $1.7 billion from sales of approximately 2.9 billion Grams to 171 purchasers (the “Initial Purchasers”).
Once Telegram delivers the Grams to the Initial Purchasers, they will be able to resell billions of Grams on the open market to the investing public.” – SEC Complaint Against Telegram
The SEC now has a restraining order against Telegram and TON, resulting in the potential postponement of the ICO, which WAS scheduled to happen this October 31st.
EOS blockchain creator Block.One was forced to pay a $24 million penalty charge for conducting an unregistered ICO over the course of almost one year, raising over $4 billion in the process.
In a press release, the SEC explains that technology firm Block.One did not provide investors with sufficient information that they should be entitled to during a securities offering.
During the fundraising, the EOS coin was sold as an Ethereum protocol-driven ERC-20 token before the launch and migration of the EOS blockchain and native coin.
“The SEC’s order finds that Block.one violated the registration provisions of the federal securities laws and requires it to pay a $24 million civil monetary penalty. Block.one consented to the order without admitting or denying its findings.” – SEC Press Release
Block.One could consider this a lucky break and an outright BARGAIN! The fine of $24 million is less than 1% of the total capital raised during the ICO. The EOS market cap currently stands at over $2.7 billion!
Some of the others that have been under the hammer of U.S. regulators include messaging platform Kik being sued for $100 million, the founder of EtherDelta fined over $300k almost one year ago, and Siacoin’s Sia settled to pay $225k to the SEC earlier this month, according to the company’s blog post.
The SEC seems to be more concerned over companies conducting the launch of digital assets as unregistered securities, rather than the status of digital assets afterwards. This could change at any given time but should be taken as a positive step for cryptocurrencies for the time being.
Regulators in the U.S. and around the world have no shortage of work. Tether and Bitfinex are currently being sued in a “trillion-dollar lawsuit” and Facebook’s Libra coin is causing rifts throughout the financial world.
Clean-Up Before the Big Players Join?
Inquiries by regulators are increasing; financial institutions are beginning to warm to the idea of money 2.0 and a more programmable and decentralized economy.
Regulations are a key factor to give the larger players the trust and confidence to safely set up operations in the cryptocurrency space, a space that is still incredibly small in the grand scheme of things.
It is a likely and logical guess that governments, financial institutions, and technology firms are going to steamroll into the blockchain and cryptocurrency space together after the authorities have established a version of order in their image.
It’s just like with Google, Facebook, Amazon, and other corporations that provide useable platforms that influence the way we live.
This post is for educational purposes. All information used is referenced accordingly. This is not investment advice; please always do thorough research and only invest what you are willing to lose, especially in times of uncertainty.