Disseminating financial intelligence
Disclaimer: This article does not constitute legal advice but rather reflects the personal opinion of the editor of FinTelegram. For investment-related questions concerning crypto-assets such as tokens or coins, please consult a qualified lawyer.
Regulatory Actions Against ICOs and Crypto-Exchanges
In recent weeks, regulatory bodies such as the U.S. SEC and other global authorities have taken significant actions against ICOs and crypto-exchanges. While the crypto community has yet to fully process these developments, it is clear to industry insiders that the “wild west” era of the early crypto boom is coming to an end.
The SEC has firmly stated that tokens issued through ICOs are considered securities. As a result, token issuers—i.e., ICO promoters—must register with the SEC and adhere to the relevant regulatory framework. Furthermore, because these tokens are classified as securities, crypto-exchanges facilitating token trading are also required to register with the SEC, a process that is both complex and costly. The SEC has referred to many crypto-exchanges as “Potentially Unlawful Online Platforms for Trading Digital Assets.”
The latest ruling came just days ago, when South Carolina (U.S.) issued a decision declaring that crypto-mining contracts—offered by cloud miners or mining pools—are also considered securities. This means that cloud miners and mining pools must register and obtain approval before seeking investments. This decision extends the regulatory reach to crypto-mining itself, completing the regulatory “loop” for digital assets.
Closure of Crypto-Exchanges on the Horizon
We can expect that many current crypto-exchanges will not be able to comply with the new regulatory standards and may have to shut down. This could lead to significant disruptions within the market. Additionally, in certain Eastern European countries, token holders and traders may face political obstacles preventing them from registering with regulated crypto-exchanges in the U.S. or the EU.
With tokens now classified as securities and the looming closure of non-compliant crypto-exchanges, ICOs are rapidly losing their appeal for investors. As exchanges begin to shut down, ICO investors may find themselves “locked” into their investments, unable to trade their tokens.
The Future of ICOs and Investments
In summary, we believe that the unregulated ICO and token trading business model, as it stands today, is unlikely to remain legitimate in the near future. This reality makes most current ICO investment opportunities highly risky. We anticipate that a new wave of regulated ICOs, focusing on security tokens that can be traded on compliant exchanges, will emerge. Investors would be wise to hold off on further ICO investments until this regulated framework takes shape.