SEC's "ICOs Are Securities" Ruling Proves Bitcoin Has Staying Power

Tyler Durden's picture

he SEC shook the blockchain community last week when it issued a report ruling that the $50 million worth of tokens that were stolen last summer as part of a hack on the DAO were securities and should’ve been registered with the SEC. The DAO was a decentralized platform for investing in Ethereum-focused startups that was essentially an early version of the now popular Initial Coin Offerings. The report will likely slow the pace of new ICOs, as fledging company’s comprising a couple of ambitious engineers figure out how, exactly, to go about registering their projects.

But CoinDesk analyst Noelle Acheson, in a report for the site’s premium subscribers, argued that the ruling’s benefits outweigh the short-term inconvenience that these startups will likely experience as they rush to recruit compliance specialists to vet their offerings and communicate with the SEC.

By declaring that ICOs should be regulated like securities, the SEC is admitting that they are, indeed, securities. This is a landmark ruling. Since the CFTC first declared bitcoin to be a commodity in 2015, regulators have provided precious few updates to help move the digital currency further down the path of legitimacy. Earlier this summer, the Delaware legislature passed a law officially legalizing the use of blockchain technology in the trading of stocks. Later, the agency issued a registration order to startup called LedgerX, granting it status as an official CFTC Swap Execution Facility, legalizing bitcoin options trading the process.

As Acheson writes, “the short-term impact on digital token issuance, assuming their assuming one, will probably instigate some sharp moves..."

“But there's something else going on here that will end up boosting blockchain development and injecting a welcome dose of innovation into securities issuance and regulation.

 

It's not so much that the SEC has officially determined that blockchain assets can be considered securities and therefore have to comply with the law. It's that blockchain assets can be considered securities at all.”

Acheson’s analysis echoes our commentary featured in a report on the initial ruling. As we said, while the SEC's intention to regulate ICOs will probably have an initial chilling effect on the market. Not only is it a blessing in disguise as it will not only validate the blockchain capital-raising mechanism, allowing the entrance of major banks to use it as a fintech alternative to IPOs, but it will also help weed the proliferation of fraudulent schemes that presently are thriving in the grey area of legitimacy.

By choosing the regulate ICOs, the SEC is opening the door for the coins to eventually be used as collateral for capital markets transactions, a crucial step toward the crypto community’s goal of supplanting fiat currencies. Finally, we posited that the Federal government’s oversight will force companies to tighten cybersecurity controls after hackers tallied $40 million in ill-gotten gains during a series of attacks on ICOs this year.

“And if blockchain assets can be considered securities, securities can be transformed into blockchain assets.

 

This takes the Delaware achievement (changing the law to allow registered businesses to issue securities on a blockchain) and magnifies it, sending a signal to all states that a federal regulator is willing to broaden its definition of acceptable transmission methods.”

The SEC's decision is an important step in a competition to determine which global regulators are leading the process of legitimizing blockchain-based asset and incorporating them into the existing global financial framework is intensifying. Last month, regulators in Switzerland granted a local bank permission to trade cryptocurrencies and incorporate them into the portfolios of its private banking market. As we reported at the time, the decision placed Switzerland at the forefront of the rapidly universe of blockchain finance, and will likely encourage other global regulators, including the SEC and the Fed, to follow suit.

Acheson posited that the agency’s most recent bitcoin-elated ruling will help repair the damage inflicted on the SEC’s credibility, at least in the eyes of the blockchain community, after it rejected NYSE Arca’s request for a rule change that would’ve used opened the door for the first bitcoin-focused ETF.

“Entrepreneurs and developers will have more confidence in their project's outlook knowing that it is compliant in multiple jurisdictions, with access to a broader pool of investors.
In addition, it sends a message to other jurisdictions that blockchain-based assets are not going away. Securities regulators around the world have been intensifying their efforts to catch up with the innovations while fulfilling their mandate of protecting investors. Guidance from the SEC is likely to help.”

Coincidentally, the SEC ruling has arrived a crucial time for bitcoin and the broader crypto universe, as a group of developers prepares to release an alternative to SegWit, potentially triggering a fork in the bitcoin blockchain that could render some coins worthless. Despite this, bitcoin is higher (up 5%) and the rest of the major virtual currencies lower (down 4%).

Support for Segwit has climbed above the threshold for adoption, which presently stands at 80% of the network’s hashing rate, according to Blockchain.info. This is an incredibly bullish indicator: As we’ve noted, the post-segwit rally could swiftly carry the digital currency above $3,000 a coin to a fresh all-time high.

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Yen Cross's picture

 So they can be "pinksheeted"  and traded like casino chits.

 Remember when Twitter IPOed, and everyone bought that dinky speaker company, because the ticker symbol was similar?

Jubal Early's picture

The SEC and the banks are making a legal power grab by trying to force the stateless crypto ipo ponzi factory to "comply" with ZOG law.

The central planners's picture

Lol something similar happend with snapchat people were rushing to buy a company with a similar name.

http://www.independent.co.uk/news/business/news/shares-start-up-snap-jum...

khnum's picture

Goldman Sachs has declared an interest in crypto-currencies Morgan and others will probably follow it will be a good novel whatever happens

Bunga Bunga's picture

I'll sell to them for $500k a coin. Or their can eat their dicks.

GoldVu's picture

Cool!

But I'd still prefer it if my Bitcoins were backed by more than hope that no-one turns off the internet.

If it's about the blockchain, then consider a 100% gold & silver backed digital currency like BullionCoin.

All holders of it can withdraw the gold & silver backing it from the vaults at any time, so if the internet goes offline, then so can BullionCoin and you haven't lost your money :)

Furthermore the value of it can't drop below the spot price of gold & silver otherwise you'll be able to buy physical at below market rate. There is nothing stopping any of the unbacked cryptocurrencies from going to Zero.

navy62802's picture

Once again, Bitcoin and other cryptocurrencies will remain because they are an effective method of wealth transfer for covert activities. If a thing is of value to the CIA, it will only die with the CIA loses interest. The CIA is only starting to get interested in cryptocurrencies as a method of financing covert activities.

PTR's picture

covert activity = retaining the money I earned?  okay.

 

On a different note, the technology of blockchain (and transaction verification on the decentralized network) is why I can see them sticking around in one form or another, whether currency or just tokens, ie Veritesium)

 

Exponere Mendaces's picture

Again Yen Cross with his oldster bullshit.

LOL

He needs to sit down, and take a nap. Let the younger people take care of things grandpa.

 

The central planners's picture

Yeah!! let teh young millenials be broke they way they want. 

Manipuflation's picture

I wouldn't take shots like that.  Yen and I had fightclub many years ago.  Neither of us are starving.

Yen Cross's picture

 This is for you.  Abba - Knowing Me, Knowing You - YouTube

  I'm sure you have a-vast understanding of derivatives markets?

  Sincerely,

      Steven Mnuchin, and the cast of  Entourage'

0valueleft's picture

Nature takes care of things, my child. So have some taco bell, text your boyfriends the new imoge everyone is so excited about and try to decide what to identify as tomorrow, unless fratboy douch is getting you the attention you need.

 

Manipuflation's picture

Having some trouble dumping your crypto crap?  It's is only worth what anyone is willing to pay for it.  I won't pay you jack shit if that helps.  You keep it.  Find another sucker.

jpot34's picture

BTC, LTC, and ETH are here to stay! Others as well, but more unsure. Cryptos to Pluto!!!!! Oh, and I'm a baby boomer. :>)

wattie's picture

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Yen Cross's picture

  FWIW, BTC is double topping. I've looked at the weekly and monthly charts.

   That trade actually helps me to "arb" other trades that are unrelated.

 It's another window to liquidity.

tmosley's picture

Provide proof that you are shorting with conviction or admit that you are shooting your mouth off.

Latitude25's picture

Why should he care about your juvenile opinion?

tmosley's picture

He should care about getting out from under the brutal oppression of his own cognitive dissonance.

But he doesn't. None of you do. You'd rather go down with the ship. Pretty pathetic, tbh.

chrbur's picture

fiat money, digital currency, blockchain technology......what do you do when the computer says no ?................

Latitude25's picture

Wow.  If the SEC says so it must be true, right?

bombdog's picture

I just wonder how many of these "securities" have to be plucked from the ether before they change their mind. The next and only logical step is for those that have sucessfully had ICOs already to close the gate behind them with the help of a friendly regulator. After all, as the theoretical limit on ICOs is infinity, so the "security" of digital coins may start to wear off. And we cannot allow such lofty aspirations as "replacing fiat currency" to be derailed.

tmosley's picture

Your comment exhibits low understanding. You can create infinite numbers of corporations too. That doesn't make all stocks worthless.

And you are really going to hate this one--there is an infinite amount of gold in the universe, too.

But I really appreciate how you fail to distinguish between equity-like ICOs and actual currency/money cryptocurrency. ICOs give you tokens that cryptos are deposited into algorithmically as a share of revenue from some ongoing operation. They aren't money any more than a stock certificate is money.

WhosJohnGalt's picture

First of all, Coindesk is a POS outfit run by Barry Shillbert -- owner of Digital Currency Group (DCG) who is massively invested in all things Bitcoin.

Of course they peddle this "Bitcoin is the only coin and has nothing to worry about!" BS in an attempt to FUD other technologically advanced blockchains -- mainly Ethereum and the tokens / ICO's built on top of it.

The bottom line is -- just like the Ford Model T, Bitcoin too will be surpassed by better technology.  There will of course be those idiots (Coindesk, DCG, et al.) who will opt to put their head in the sand and resist the inevitable. While other, forward looking, and savvy investors continue to move with the ever evolving crypto landscape.

tmosley's picture

I don't doubt it, but even when they lost, investors won. And Ford is still around today. If bitcoin could say the same 100+ years from the date of its founding, I would be EXTREMELY impressed.

WhosJohnGalt's picture

I agree. I have no problem with Bitcoin itself. I take issue with many of the people who comprise the Bitcoin community of today and what they have pathetically morphed into.

Mainly a bunch of FOMO idiots who have absolutely no idea what they're "invested" in and are emotionally married to their investment to the point that they will stoop to unthinkable lows to defend said "investment".

The crypto space is filled with man babies that are seemingly worse than console war (XBox One vs PS4) fanboys. It's quite pathetic. And frankly, pretty damaging to the space as a whole.

Imagine what unindoctrinated outsiders who decide to peer behind the curtain for the very first time must think to themselves when they see the level of rank immaturity that populates the crypto space.

I suppose it's survival of the fittest (for now), which is a good thing for investors who know their stuff and are able to cut through the lies and BS.

Anyway, hopefully BTC can resolve this fork issue ASAP and move on to greener pastures.  I think it would be beneficial for the crypto space as a whole.

Either way, crypto will move on with or without BTC, the only difference will likely be the timing of events and the subsequent progression.

PTR's picture

Either way, crypto will move on with or without BTC, the only difference will likely be the timing of events and the subsequent progression.

 

Hear hear.

Golden Phoenix's picture

Everything you've just said is ad hominem with no other purpose than making you feel superior about having missed a 50,000%+ bull run.

Actually, I take that back. A few minutes on Youtube surrounded by cloud mining referral milkers proves otherwise. The release of a wallet with a new logo causing a pump and dump proves otherwise. 

swamp's picture

Tax tax tax
And
Eliminate dollar competition

Beyond Organics's picture

With few exceptions, you will all be found to have been products of the idiocracy.

PTR's picture

"...requires Compliance..."

 

I find myself more and more humored by the assumed positions of .gov agencies these days.  They assume the everyone cares what they think.

 

gdpetti's picture

Is anyone surprised that the establishment protects its own products?