Bitcoin and crowdfunding seem to be two peas in a pod, although there are hardly any successful Bitcoin-related crowdfunding platforms in existence today. One of the main reasons for this struggle is due to impending regulation on crowdfunding, and how it would affect small investors. A recent SEC ruling allows investors to buy stock in startup companies through online crowdfunding, which is great news for Bitcoin as well.
SEC Approves Purchasing Company Stock Through Online Crowdfunding
Up until this announcement was made, only “accredited investors” were allowed to partake in online crowdfunding. An “accredited investor” is someone who owns over US$1m in assets – without taking the value of their primary residence into account – or an individual who received a yearly income of US$200,000 or more in the past two years. It goes without saying these restrictions exclude over 90% of the population of this world.
All of that has come to change, as the Securities and Exchange Commission now gives small investors the opportunity to buy stock in startups through online crowdfunding. However, there will be certain limits imposed, to protect the “average person” from making too many risky investments in a brief timespan.
Any individual with an annual net income under US$100,000 can invest a maximum of US$2,000 per year through online crowdfunding. Individuals with larger incomes can invest up to 10% of their income per annum. A golden rule in the crowdfunding business is to “never invest more money than you can afford to lose”, so these limits seem to make sense.
Smaller investors are not the only party facing certain limits, although the thresholds are far less strict for startup companies. According to the ruling, companies may collect up to US$1m through online crowdfunding per year, without having to register with the SEC itself. However, companies will need to provide investor details, their business plans, and a comprehensive list of the company’s employee structure.
All things considered, the SEC ruling seems to be providing a step in the right direction, for both startups and smaller investors. That being said, online crowdfunding si no formula for guaranteed success by any means, and these “strict” limits are put in place to protect the consumer.
An Excellent Opportunity for Bitcoin Startups
Over the past year and a half, Bitcoin has been facing a lot of scrutiny from government officials and regulators. The disruptive digital currency operates outside of the control of banks and authorities, making it prone to harsh regulatory decisions. BitLicense, the first ever Bitcoin regulatory framework for the state of New York, is a prime example of how not to regulate digital currency.
Even though there are many Bitcoin startups looking to secure additional funds through online crowdfunding, very few of them attract smaller investors. The reason for this is simple: most Bitcoin crowdfunding platforms adhere to the same guidelines as regular online crowdfunding platforms do. In the end, only accredited investors are given the opportunity to invest in Bitcoin startups.
Due to this recent SEC ruling, the landscape has changed for Bitcoin startups as well. Whether or not these same limits apply to these companies, remains to be seen. But online crowdfunding is becoming more and more important, and Bitcoin startups will benefit from these rulings one way or another.
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