Bitcoin, a currency based on cryptographic technology, has been a conundrum to regulators around the world all these years. Till now, barring a couple of regulators and governments, most have barely been able to take a decisive call on it. While the regulatory machines have been slow to decipher these technologies (no pun intended) and come up with appropriate regulatory frameworks, the cryptocurrency space has evolved rapidly with the launch of technologically advanced and complex financial products and mechanisms—the sale of “Tokens” via an Initial Coin Offering (ICO) being one of them.
An Initial Coin Offering or simply ICO can be considered a counterpart of an IPO in the cryptocurrency market. Just like money is raised by a company through shares issued, an ICO is a mechanism through which tokens (or coins) are sold to raise funds for a project. However, instead of fiat currency, Bitcoin (BTC) or Ethereum (ETH) are used to buy these tokens on a blockchain-powered platform. These virtual tokens or coins are then listed on a virtual currency exchange where they can be bought or sold.
While the report mentions that the agency determined not to pursue any enforcement action in this matter, the it said that “issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies." It added, "Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors' protection.”
Over $1.2 billion has been raised through initial coin offerings (ICOs) during H12017 as per a report by AutonomousNEXT. This exceeds the venture capital investment into firms related to Bitcoin and blockchain technology.
The SEC’s stance has brought ICOs and such innovative platforms under scrutiny. Barry Silbert, founder of the DigitalCurrencyGroup, tweeted, “The SEC has just put every potential ICO issuer on notice. From here on out, nobody gets a free pass.” While Ronny Boesing, CEO of OpenLedger, told Investopedia, “Platforms or services that want to do an ITO should go above and beyond whatever the law requires within existing legal frameworks. As an industry, we should all strive for setting the gold standard.”
Back in 2014, the IRS declared that virtual currencies such as Bitcoin have to be treated as property for taxation purposes. This year, it even approved self-directed IRAs with Bitcoins. (See also: How To Add Bitcoins To Your Retirement Account)
In 2015, the U.S. Commodity Futures Trading Commission defined Bitcoin and other virtual currencies as a commodity covered by the Commodity Exchange Act (CEA). Earlier this week, LedgerX was granted the requisite license to provide clearing services for fully-collateralized digital currency swaps. LedgerX, which was also granted an order of registration as a Swap Execution Facility on July 6, 2017, initially plans to clear bitcoin options, the CFTC said in a statement.
The Bottom Line
The Bitcoin community is growing in terms of investors, investments, and legitimacy. With more and more financial products and instruments being built around cryptocurrencies, the process to regulate the space will continue in order to check criminal use, protect investors and set standards. With almost a decade in existence and billions in valuation, Bitcoin and other cryptocurrencies are here to stay, and the growing involvement of regulators is in many ways proof of their mainstream appeal (See also: The First-Ever Ethereum IRA is a Game-Changer)