How Are ICOs Being Regulated? Are ICOs a Legal Funding Model?
“There is not yet a right answer to the question ‘Are ICOs legal?’” says Peter Van Valkenburgh of Coin Center, a nonprofit organization focused on policy issues facing cryptocurrencies. “Anyone who tells you otherwise, unless they are a judge, is cutting corners, making assumptions, and they are probably a bad lawyer.”
ICOs are in a legal gray area. Most tokens are not quite securities, not quite currencies, and many claim not to be of an investment nature at all. Tokens and cryptocurrencies don’t fit any traditional asset class. As you might expect, this fosters a great deal of uncertainty.
According to Van Valkenburgh,
“ICO is still an ill-defined category. It’s a trendy new term used to describe a menagerie of very new things (tokens, cryptocurrencies, etc.) and activities (pre-sales, pre-mines, etc.).”
So new are these ICOs that no judge in the U.S. has had the opportunity to officially apply existing securities laws to these technologies. In the U.S., the process for determining whether a transaction is considered a security is called the Howey Test. The first ruling by a U.S. judge on this test as it applies to digital currencies and tokens will have many implications, most notably whether token issuers are required to comply with the strict requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The lack of regulatory clarity surrounding ICOs, particularly in the U.S., is unsettling to many and has forced innovators in this space, like Blockchain Capital, to blacklist unaccredited U.S. investors and launch their crowdfunds from places like Switzerland or Singapore, where governments have already ruled that digital currencies are not securities.
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