With the rise in cryptocurrency such as the world famous Bitcoin and Ethereum , there is naturally a rise in the issue of initial coin offering (“ICO”) for the purpose of raising funds for Blockchain and Fintech projects.
This has resulted to potential issues identified by regulators across the world such as
- Lack of investor protection or customer protections
- Fraud risk
- High price volatility (Halvings.com has witness this on a daily basis)
There are now a number of Jurisdictions around the world that is adopting a case by case observation below is United States of America’s take on ICO:
- Commodity Futures Trading Commission (CFTC) stated in 2015 that it classifies Bitcoin and other cryptocurrencies and alternative coins as commodities.
- CFTC later stated in a report summarising its findings on the cryptocurrency issued by the Decentralized Autonomous Organization (“DAO”).
- Securities Exchange Commission (SEC) also classify cryptocurrency as a security with respect to ICO. Cryptocurrency classified as a security, ICO may be subject to registration with the SEC and disclosure obligations. Those cryptocurrency traded on exchanges and any parties which involved in the brokering of trades may require registration.
- Where a cryptocurrency is determined to be a security, the ICO may be subject to registration with the SEC and disclosure obligations. Furthermore, if the cryptocurrency is subsequently traded on an exchange, the exchange and any parties involved in the brokering of trades may require registration.
- Uniform Law Commission circulated draft legislation that will create a regulatory statutory structure to regulate transactions in cryptocurrency as transactions in financial assets which will result in providers of cryptocurrency-related products and services to obtain a licence in order to operate in the states which enact it, unless otherwise exempt.
- Section 1241 of USA Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017 recently in December 2017, was implemented to regulate cryptocurrencies and Bitcoin.