The government is taking aim at ICOs, and the crypto-world has heard the warnings loud and clear. In a new trend this year, several cryptocurrency projects are heeding regulatory warnings and seeking approval from the Securities and Exchange Commission.
In a world of highly liquid, hard-to-trace tokens, a shift towards embracing regulatory oversight represents a market that’s coming to terms with the rules. Although Ether and Bitcoin seem to be in the clear, many tokens—especially those issued as investments in initial coin offerings—are likely to fall under regulatory remit.
The latest company to knock on the SEC’s door is Blockchain Assets AI, a Wyoming Corporation that plans to issue an SEC compliant token backed by “an actively managed asset pool.”
In short, the “Numeum” token is just like owning a piece of a crypto hedge fund. Numeum (the “Numeum Wealth Fund”) will invest income from the ICO into regular investments, like stocks and real estate. These will be managed by professional traders and computer algorithms, hopefully making Numeum as safe an investment as any in crypto.
Blockchain Assets says that it has thoroughly researched US securities regulations, hired consultants, and conferred with the SEC. “The company believes that this US-compliant model will become the template” for future ICOs, it said in a press release.
For the moment, and in keeping with SEC requirements, Numeum is only accepting contributions from “accredited investors.” But if their registration is successful, they will be able to offer legal securities to the entire US market—and become one of the few ICOs to do so with the blessing of the authorities.
Another company, Praetorian Group, is currently seeking a regulatory green light for what can be best described as a land-backed cryptocurrency. According to the white paper, Praetorian’s ICO profits “will purchase and operate income-producing properties that can include office and apartment buildings, warehouses, condos and shopping centers,” which will be used as the asset backing for their token.
Because real estate tends to keep up with inflation, the company predicts that their cryptocurrency will be a reliable harbor for investments—as well as a liquid one, since tokens can change hands much more easily than real estate does.
Praetorian is a little further along, having already filed its registration and paid for the registration of its token sale. If successful, Praetorian may become fully registered by July.
In the past, some initial coin offerings attempted to skirt possible regulation by giving their tokens a future utility, representing non-investment values such as storage or processing power in an as-yet-undeveloped ecosystem. However, the SEC has made it clear that “utility” does not matter so much as “intent,” and the fact that most people would reasonably treat such tokens as investment contracts puts them in a bad position.
A few offerings, like Kodakcoin, have sought exemptions from securities laws–which restrict investment from everyone except wealthy “accredited investors.” Other offerings have avoided the whole mess altogether, by explicitly closing their token sales to American investors.
However, initial coin offerings are still in the firing line for regulation, and there’s no knowing when the SEC will start pulling the trigger. Several warning shots have already been fired over the bows of potentially noncompliant ICOs.
That’s no guarantee that any of these ICO’s will be a good investment, and they have as good a chance as any other cryptocurrency of becoming the next AltaVista. But the fact that companies are starting to toe the line should at least protect investors from the inevitable regulatory hammer.
The author is invested in Bitcoin and Ether, which are mentioned here.