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ICO guide: pessimistic future for crypto


25 Feb 2019

#Bitcoin

The US SEC 'ICO guide' indicates a pessimistic future for crypto


The US SEC recently published its ICO guide for those who aim to invest in ICOs or launch one themselves. While many have argued that the guidelines came a bit too late, as the majority of the crypto community considers ICOs to be dead at this point, the document has still shown that the SEC does not look lightly on the trend. The guide also includes a gloomy outlook on exchanges as well, which even include the DEXes.

Most coins may be securities


According to the regulator, most coins that have been sold in ICOs over the last two years are securities, even if they were registered as utilities. The SEC claims that tokens or offerings that promise future gains based on the entrepreneurship or efforts of others are securities.

It is no secret that a lot of tokens promised large returns to investors, and while many of them turned out to be scams, some of the legitimate projects did this as well. TRON's Justin Sun, for example, is particularly known for using hype in order to attract investors and announce the future success of his project.

Since Sun is so active on Twitter, his and similar announcements might be the very reason why the SEC took an interest. Suggesting that investment in TRON might pay off, even if only in the long run, sounded suspiciously close to promoting a security to the regulator.

How does this reflect on exchanges?


The SEC also claimed that crypto exchanges might be in danger as well, as listing a security — even if they are not aware of the coin being a security — may be seen as the violation of the law. This is something that Coinbase was desperately trying to avoid by only offering a handful of coins. Other exchanges, particularly those which offer large numbers of altcoins, chose to relocate to foreign countries for this exact reason. However, moving to a different country might not be enough to save them from the SEC.

This leads to another question, which is what does that mean for exchanges that do not have a physical headquarter? Well, the SEC has an answer to that as well. According to the regulator, it doesn't matter whether the exchange is centralized or decentralized, as long as it allows purchase or sale of securities, it is breaking the law.

Their statement says that the activity itself is the violation, while the type of technology (or terminology) used by those operating the system is irrelevant. This even includes autonomous pieces of code that provide the same service, which led to another question: is prosecuting those who upload open-source pieces of code, and allow others to use it, the violation of First Amendment rights?

The EFF (Electronic Frontier Foundation) responded by sending a nine-page long letter to the SEC, reminding the regulator to keep constitutional rights in mind while creating such guidelines.

What will happen next?


There is a lot that remains unclear, even regarding the guidelines. The SEC taking action is something that many have likely welcomed, although the potential consequences may not exactly be what they expected. Right now, the SEC seems to be planning on refreshing its focus on crypto, which is likely something that will occur in 2019. Whether this means bringing clear and useful regulations or trying to fix the mess that the crypto space is currently in remains to be seen.

Whatever the case may be, the crypto market might find itself in a tough spot in 2019.


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