Bankless Times spoke with key figures in the blockchain industry to get their reactions to the Securities and Exchange Commission’s ruling that U.S. securities laws may apply to offers, sales, and trading of interests in virtual organizations. Special thanks to Wachsman PR for their assistance.
Arnold Spencer is the general counsel of Coinsource, the world’s largest bitcoin ATM network:
“The importance of the SEC’s Investigative Report regarding the DAO cannot be overstated for the ICO industry. The SEC’s guidance provides everyone in the digital currency industry with two, clear messages. First, it is now clear that some digital currencies will be viewed as securities, depending on how the tokens or coins are structured. Secondly, and more importantly, it is now clear that the regulators and law enforcement in the United States will be enforcing these laws.
“The pipeline for ICO’s just got a lot smaller.
“The SEC’s Investigative Report is not breaking any new, legal ground. For decades, regardless of whether it was stocks, loans, interest in oil wells, and now, digital currencies, the central focus has been on whether the instrument was for investment purpose or was for another substantive or practical purpose. If you buy an interest in a golf course to make money from the business, it is a financial investment and therefore a security. If you join a golf club to play golf, it is not a financial investment and not a security.
“This is a major turning point. ICOs and other coin offerings that are primarily structured as investments will have to be registered with the Securities and Exchange Commission if they are marketed to U.S. investors. Issuers will have to choose between the expensive process of registering with U.S. authorities or foregoing to U.S. capital markets.
“Successful companies have gone down both these paths. But the era of quick ICOs in the United States based on an investment concept, and not based on a new functionality concept, is officially closed.
“I predict some significant fallout for the companies that have conducted ICOs in the past six months that are structured similar to the DAO. Many ICOs are out there that will now be viewed definitively as securities, and yet are unregistered. These companies will now need to register as securities, an expensive process that they may or may not be able to pay for, or they will risk being on the wrong end of an enforcement action.”
Perry Woodin is the CEO of blockchain accounting and governance firm Node40:
“Breakthrough advancements in technology often give way to rapid acceleration of new business ideas. The number of businesses supporting blockchain applications have exploded over the past couple of years, and with them we’ve seen new tools for raising capital.
“The issues that crop up during these cycles of rapid business acceleration often lead to individuals taking a chance with compliance. As we have seen with blockchain, those taking a position that their actions fall into a legal grey area are often shocked to find that compliance is black or white. If you’re aiming for the middle ground, you will likely find yourself out of compliance and subject to existing, or yet to be defined regulations.
“The SEC’s report on ICOs was not a surprise. Many of the ICOs were aiming for that compliance grey area. They wanted their offerings to be considered “crowdfunding” even though they could not meet the requirements of the Regulation Crowdfunding exemption. Now we’ll see what happens as companies attempt to fit within the SEC’s guidelines.”
Jan Isakovic, cofounder and CEO of Cofound.it, a distributed global platform that connects exceptional startups, experts and supporters worldwide:
“At Cofound.it, we feel that this is a clear signal to blockchain startups to try and design a token that cannot be classified as a security and to choose an optimal jurisdiction in which to incorporate. It’s also a sign of some rules being established, which we welcome.
“We hope that these rules will be created with an understanding that this class of assets is often different from securities and that these assets deserve careful consideration.
“Finally, we hope that any emerging regulation will focus on providing support for future growth of the space, and will not stifle it unduly.”
Charles Hoskinson, CEO of IOHK, a leading blockchain research and development company:
“The SEC statement was not the draconian crackdown that might have been. The analysis was rigorous and thoughtful, showing a deep understanding of the issues and therefore it is a positive signal for the industry.
“It’s clear that confidence from regulators is growing when it comes to dealing with cryptocurrency and blockchain. The SEC is moving to rein in some of the excesses of the ICO trend while being careful not to stifle innovation.
“With irrational exuberance in the market sending huge amounts of money flowing into ICOs and resulting in moral hazard, the SEC had to act. When you take people’s money in an ICO, that creates a moral and ethical obligation to create value, which unfortunately may not happen in many cases out there.
ICOs are here to stay, but for this model to work you need standards, purchaser protections and compliance. Know Your Customer and Anti Money Laundering rules are essential so you know who you are dealing with, and that insider trading and other malfeasance is not happening. The SEC statement is a first step along the path to ICOs becoming a legitimate model for fundraising.”
Ari Meilich is the project lead for blockchain-based virtual world Decentraland:
“The SEC weighing in represents public acceptance of blockchain instruments. They said that the DAO tokens were a security, and that all securities must be registered according to the law. The market was anticipating this, and the price of non-security tokens, like Ethereum, did not fluctuate when the SEC report came out.”
Ron Chernesky is the CEO of investFeed, a social trading platform that recently dropped US equities in favor of cryptocurrencies:
“We welcome it, and actually think it’s a step in the right direction for the industry. Before yesterday’s announcement, it was common knowledge that ICOs have been enveloped in a regulatory grey area, but we spent a lot of our resources on best-in-class legal counsel and compliance to ensure we conducted ours right.
“One of the most telling pieces in the SEC announcement was an acknowledgement that some ICOs are completely fair investments, and some are not. We fall into the former category. Just like any other opportunity, there are inherent risks involved, and ICOs are no different. The SEC is warning investors to be aware of the risks, and ensure they do their due diligence on the company conducting it, the structure of the token generation event, the team behind it, and the product roadmap.”
Read the full SEC report here.