Appearing on American broadcaster CNBC this Monday, Jay Clayton, Chairman of the Securities and Exchange Commission (SEC), laid out the regulators views on initial coin offerings (ICOs).
Noting that he believed certain cryptocurrencies, notably Bitcoin, are not securities, Clayton said that many ICOs do fall under that category.
Unsurprisingly then, Clayton said that ICOs operate within the SEC’s regulatory purview and firms that want to perform one have to adhere to any relevant legal requirements that the regulator has outlined.
Clayton did point out, however, that there two ways in which firms can escape the SEC’s grasp when it comes to ICOs.
Getting around SEC securities regulation
The first and most obvious one is simply moving offshore. An ICO that takes place outside of the United States doesn’t have to adhere to the SEC’s rules, even if the regulator does have a long reach.
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Less well-known are private placement rules that would allow a firm to launch an ICO without having to register their product as a security.
These rules, which Clayton did not elaborate upon when speaking to his interviewers, would most likely be of little to no use for most companies launching an ICO.
Firstly, companies that use a private placement to raise capital cannot advertise the fact that they want to do so.
Even more significantly, they can only raise funds from up to 35 investors. Given that many companies performing an ICO want to raise small bits of cash from thousands of investors, that cap isn’t going to be of much help to them.
During his interview, Clayton was also asked about the possibility of a Bitcoin exchange traded fund (ETF).
Remaining fairly shtum on the subject, the SEC Chairman admitted that the regulator was looking at the possibility of a Bitcoin ETF, but that custody services and price information remained problematic.