Ever since the SEC issued its initial comments regarding initial coin offerings, people have been wondering how this situation would evolve. Things have been somewhat quiet on this front, despite its Cyber Unit coming to life not long ago. SEC Chairman Jay Clayton recently issued a statement on cryptocurrencies and initial coin offerings. As one would expect, there are a lot of questions which will need to be answered before any real growth can be expected.
SEC Chairman Still has Some Concerns
No one can deny that both the cryptocurrency and ICO industries have grown incredibly quickly throughout 2017. Currencies such as Bitcoin now boast five-digit valuation tags, and the number of ICOs has become too large to count. All of this growth has not gone unnoticed by the SEC, and its chairman has expressed concerns over some of these developments. That is only normal, as it’s his task to protect investors from financial harm first and foremost.
Doing so is much easier said than done, to say the very least. Jay Clayton acknowledged as much in his most recent statement. Cryptocurrencies and ICOs present investors and market participants with a lot of questions. It is difficult to come by sufficient and satisfying answers in a lot of cases. There are still concerns over the legality of these products, whether or not trading markets are fair, and if there is any substantial risk of outside threats. Given the colorful history that cryptocurrency has with hacking, fraud, theft, and loss, the obvious answers aren’t overly positive right now.
Moreover, the SEC chairman touched upon concerns raised in regards to these new forms of money and investment. Investor protections are still inadequate in both areas, as both cryptocurrency and ICOs are subject to severe manipulation and potentially even fraud. There is still no ICO officially registered with the SEC, which is rather surprising. Nor are there any plans to enable ETFs related to cryptocurrencies. Anyone hoping for such investment vehicles will have to bide their time for now.
Moreover, the SEC chairman noted that some offers are too good to be true. Any promoter guaranteeing returns – either big or small – is often peddling an illegal project which will defraud investors in the end. Onecoin is a prime example of such a scam, even though people still keep throwing money at it for some reason. Additionally, the SEC cannot protect cryptocurrency or ICO investors if their contributions are moved outside of the US.
At the same time, Clayton firmly believes initial coin offerings can be an effective tool to raise funding. This applies to both entrepreneurs and corporations willing to explore this business model. According to Clayton, such activity must be accompanied by important disclosures, processes, and investor protections. That is not the case right now, as no ICO organizer wants to jump through these hoops by the look of things. Issuing a security means that existing securities laws must be followed at all times.
It will be interesting to see how market professionals respond to this new statement. It is in their best interest to pay attention to these regulatory developments, as they may be liable if something goes wrong. A collaborative effort is direly needed to ensure that both cryptocurrencies and ICOs can be regulated without stifling innovation. An interesting future lies ahead for both industries in the US, although no one knows for sure how things will play out in this regard.