ICOs On Track To Raise $1.7 Billion As Firms Ignore SEC's "Tokens Are Securities" Ruling

Tyler Durden's picture

Two weeks ago, the Securities and Exchange Commission declared that the virtual tokens issued during an initial coin offering, an increasingly popular funding mechanism for blockchain startups, are considered securities and are therefore subject to a litany of regulatory strictures, including the need to register any pending offerings with the agency.  

The SEC’s decree was expected to slow the pace of new ICOs, as startups scrambled to hire legal counsel and figure out how, exactly, to comply with the new rules, as we reported. However, blockchain analysts reasoned that the agency’s ruling was a good thing for the market’s long-term health, and that the increased scrutiny would help confer more legitimacy on the shady ICO market, which is fraught with hacking attacks and scams. SEC oversight benefits entrepreneurs by encouraging more risk-averse investors to buy their tokens. It helps investors by weeding out fraud.

However, it seems we underestimated the market’s willingness to simply ignore the whims of US regulators. Despite being the world’s largest economy and one of the largest markets for crypto assets, the New York Times is reporting that “the cautionary words of American regulators have done little to chill a red-hot market for new virtual currencies.”

“…even after the commission said it was looking closely at projects that may violate its rules, programmers are still embarking on new offerings at a torrid pace. Most of the offerings have little legal oversight and some appear to conflict with the commission’s basic advice.

 

‘The broader detail and the silences in the report should give many people pause and that doesn’t seem to have happened yet,’ said Emma Channing, the general counsel at the Argon Group, which helps projects in the industry raise funds. ‘I don’t understand why everyone isn’t as concerned as I am.’

 

Since the guidance was released on July 25, 46 new coin offerings have been announced and an additional 204 are moving toward fund-raising, according to data Tokendata.io.”

Despite the SEC’s ruling, the ICO market remains on track to surpass all historical VC investment in the blockchain space by year end, which stands at $1.7 billion since 2010, according to a team of analysts at Pitchbook. In the eight years since the debut of Bitcoin, only Coinbase, Circle and 21 have raised more than $100 million.

July was the best month for ICOs to date, according to NYT.

“July was the biggest month for coin offerings, with 34 projects raising $665 million, Tokendata.io data shows – or twice as much money as was raised in the first five months of the year combined.”

However, data from Goldman Sachs puts the total for July closer to $300 million, which would make July the second-best month after June. However, ICOs have surpassed angel and seed-stage funding for all internet companies since the beginning of the summer.

The decentralized nature of digital currencies allows blockchain companies to – using Pitchbook’s phrasing - “maximally leverage regulatory arbitrage.” Why should startups with a hot ICO waste money on lawyers when they can just move to Switzerland?

As the NYT explains, companies can try to avoid the SEC by blocking US investors from participating in an ICO…

“Other projects have tried to work around regulators by prohibiting American investors from buying their coins, which they have done by barring anyone who tries to buy the coins from an internet address associated with the United States.”

…but the relative ease with which US investors can circumvent these limitations still risks angering the agency, which could go after a company for non-compliance – even if it’s based in a foreign country – if US investors are found to have participated.

“Several lawyers said that the commission is unlikely to care about the steps taken to keep out American investors if Americans still end up buying the coins.

 

Just blocking IP addresses is irrelevant,’ said Patrick Murck, a partner at the law firm Cooley, referring to internet protocol. ‘There’s only one thing that is relevant, and that is whether a US investor bought in your sale.’

While Switzerland’s regulatory climate remains accommodative for blockchain companies – it recently opened the door to the crypto-asset management industry by allowing a local private bank to begin handling digital currencies – Singapore, another crypto haven, has said it would adopt many of the same restrictions imposed by the SEC, according to the NYT.

Ultimately, the real reason so many firms have hesitated to comply with the SEC is because they view compliance as a greater business risk than non-compliance. To use a metaphor: Nobody wants to be the first person to jump into murky water - there could be sharks or other dangers lurking beneath the surface.

“Mr. Murck said that even teams that do make an effort to comply with the regulators are going to be in treacherous waters because of the lack of clear definitions and law regarding virtual currencies.”

 

“There are still open questions after the SEC report,” he said. “There’s uncertainty and risk in the space, even for people who are taking a professional approach to it.”  

But after the waters have been tested, companies will have a clearer picture of the risks involved, and perhaps be more willing to comply.

Read the full pitchbook report on ICOs below:

PitchBook 3Q 2017 Fintech Analyst Note ICOs by zerohedge on Scribd

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Latina Lover's picture

Who needs the parasitical SEC, a crony capitalist agency used to enrich the .001% while fucking everyone else? Does the SEC ever protect investors against naked shorting that often destroys small public companies,  allows insider trading by CONgress, gold manipulation or the likes of Madoff? The ICO's are billions of fuck you's by small investors who have had enough.

Deathrips's picture

Fuck the SEC. Overpriced welfare babysitting bullies.

RIPS

yrat's picture

this new industry is how you go galt, and yet still gets bashed here relentlessly.

 

booboo's picture

Ha! You look funny running into Galt Gulch with that SEC midget strapped to your back, did you miss the story above and this is just the beginning, wait till that IRS Gorilla wants a piggy back ride.

yrat's picture

you're still thinking in terms of dollars.  you don't get it yet.

swamp's picture

There are patriots who are constitutionalists
There are entitled stealers and usurper freeloading fascists

tmosley's picture

I like how the oldbugs failed to identify this as a trolling target because the word "bitcoin" wasn't in the title.

thedespised's picture

Damned right.  FUCK THEM ALL TO DEATH.

BlindMonkey's picture

Free Jon Corzine!!

 

Remember, the SEC is one of the agencies that didn't do shit to protect investor's mone from Corzine and MF Global.  

Blue Steel 309's picture

The SEC is assuming legislative powers that the US Constitution denies they have. This is standard operating procedure in Weimerica.

DjangoCat's picture

Who was it jailed all those banksters in 2009, the SEC?  Eric Houlder and the Justice Department?

Wait, nobody did.

 

order66's picture

Bubble after bubble after mania after mania, everybody chasing money.

thedespised's picture

You speak, but your words, they mean nothing.  Your insight, from 1987.

Dickweed Wang's picture

Human nature doesn't change in 30, or 300, years.

DjangoCat's picture

This time is different.  Know you've heard that one before, but, this time its different.

PTR's picture

Instead of commenting one way or the other, I'm going to quietly do my thing, buy some popcorn, grab a seat and enjoy the show.

tmosley's picture

If enough people ignore the government, they can't do anything to us any more.

I'm not a fan of ICOs, or putting money into them, but this is an excellent trend, and should be supported.

thedespised's picture

Guess you hate making money?   I'm up 7000% LOL People are crazy.

tmosley's picture

For now. Lots of potential for fraud.

I'll wait for the second or third generation when there are some people with good repuations to give it some credibility and settle for just 700 or 70%.

DjangoCat's picture

I grew up in the insurance business.  Talk about potential for fraud.  I couldn't get away from it, it is everywhere.

Next generation crypto is very interesting, have a look at Tezos, the No. 1 ICO above.  Much better and more efficient idea, which I bet is going to take over eventually.  That said, cryptos are developed with specific niches in mind, and I believe there is and will continue to be a whole ecosystem of value transfer mechanisms uniquely suitable to particular use cases.  They will all evolve and change and survive.

As a store of value for us retirees, who have the cash but need to hold onto it, I stick with gold and silver and the top two cryptos and Tezos fo now.

In order to enter the fiat world with a Bitcoin debit card, all the KYC rules are in pace and they get your DNA before giving up the card.

We need more direct acceptance of Bitcoin.  I don't like to know they track everything I do.  I wear a Bitcoin baseball cap.

DjangoCat's picture

Thanks Tm.  We are too many to jail.  Law only works when we obey.

thedespised's picture

HAHAHAHAHA This is actually amazing.  Shows that all the scare tactics no longer work when your country is a garbage whole about to be boot stomped by the new world order.

null's picture

They have 5 years to go after who they want.
In other words, pretending the SEC is toothless, only increases its coercive power, eventually.

BlueGreen's picture

Aaaaaand here comes a foot in the door for the investigation and subversion of another threat

Bunga Bunga's picture

BREAKING: Bernie Madoff to lead SEC's ICO department.

WhosJohnGalt's picture

Two weeks ago, the Securities and Exchange Commission declared that the virtual tokens issued during an initial coin offering, an increasingly popular funding mechanism for blockchain startups, are considered securities

Bullshit -- they said that some of them may be securities -- big difference.

You can tell whoever wrote this is a total Bitcoin maximalist trying their hardest to FUD and discredit ICO's and the platform (Ethereum) they primarily run on.

Sorry "Tyler" (whoever you are in this case), but you may want to stop resisting the Ethereum train right now. Or risk getting steamrolled.

Iskiab's picture

There's actually a lot the SEC can do, like appropriate assets in the US. While the company might be based in another country, it's typical for the US to force overseas compliance if you do any business in the US.

So while the company might be based in Sweden, and they may not 'permit' purchases in the US, if there are purchases in the US they could face fines. How they choose to enforce them is at their discretion too, including fining investors (like the venture capitalists).

I doubt the government shut down offshore accounts, like Swiss bank accounts being private, just to allow block chain for another way to hide assets. I'd expect them to come down hard, if there's one thing the government hates it's competition and multiple players, they'll try and reduce the number of currencies so they can back door a smaller number to keep tabs. The government likes monopolies and will try to shape the market.

DjangoCat's picture

Screw em.  The war is on.

Yen Cross's picture

  Free- Bart Chilton, and Mary Jo White. aka Janet Yellens Down syndrome sister.

Spectre's picture

Yes, Fuck the SEC & CFTC !

Spectre's picture

We are about to fully implement our new coins by the 1st Qtr 18, Dibble & Dabble coins.

adr's picture

People say fuck the SEC but don't care that nearly every ICO is just a scam artist trying for easy money. 

Who is going to use one of 2000 different cryptocoins. 

Con games are con games regardless of whether they are IPOs, ICOs, Ponzi Schemes, pensions, etc. None should be applauded because they are supposedly decentralized. ICOs are no different than a scamming panhandler standing at an intersection, just far more profitable. 

All of these exist because of a weakness in human nature that wishes to obtain wealth without labor. Those who participate are enablers of the scum of humanity. 

Arrest Hillary's picture

Insider trading is good and natural .... it rewards people who care about the company .... dilletant investors should invest with people who have skin in the game .... ya can't stop it anyway ?

wattie's picture

ATTENTION GOLD AND SILVER INVESTORS!!

A brand new institutional grade precious metals backed crypto currency is about to be launched. 

This new gold/silver standard in crypto will offer gold/silver investors a yield, security and confidentiality. 

You can also choose to take delivery of your metal should you desire to!

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www.ownbullioncoins.com

Golden Phoenix's picture

Coins such as bitcoin are created by the people and sold to the bankers. Tokens are created by bankers and sold to the people to get their coins. Tokens are their effort to reassert the old system of control. All that said informed, consenting adults should be able to buy whatever they want provided it isn't someone else.

E-Knight's picture

Can someone answer how the SEC could even track someone down? The ICO goes to an eth address - then sent around and cashed out slowly. How does sec ever find out?

PTR's picture

After spending mindless sums of money to hire people to figure out blockchain, set up a process, then try to get all the permissions to get info that the other agencies got from snooping people's PCs on the network and THEN they can match up a wallet number to a computer, to an IP address, to you.

 

If there is no money (fines, theft/taxation, etc) to be had, this priority on budgeting by congress will be pretty low on trough.

 

The party moves on without them.

 

EXOC's picture

SEC finds out because hopeful (hopeless) investor (rube) puts all his retirement savings in a can't-miss ICO.  Fast forward to the bit where he's lost it all because the secondary market for his [ethbits/iDice/viberate/etc] has a bit of tulip bulb in it.  He dials the number from the ad on the side of the bus and gets through to plaintiff counsel saying "I've been cheated, I'd like a free retroactive put."  Lawyers seek a group of rubes sufficient to file a class action suit.  SEC is happy with private enforcement and won't get involved in many if any.  The release they put out is enough to enable plaintiffs lawyers to file class action suits against anyone dumb enough to issue ICOs to anyone in the US (especially if they have operations/assets in the US).  All the ICOs come tumbling down.  SEC doesn't track down much on their own, they enable private enforcement through class actions and they keep tabs on the lawsuits in case they want to step in and establish any furhter principle.  If the private enforcement is working they sit tight.  Don't be the last guy out.