Blockchain-based projects that are looking to participate in an ICO may sure be interested in the general recommendations published recently by United States Security & Exchange Commission.
The role of the Framework for ‘Investment Contract’ Analysis of Digital Assets comes in line with the previous SEC stances on cryptocurrencies in determining if they are to be considered investment contracts – that is securities – or utility tokens that can be used solely inside the issuing project.
What is important to highlight from the start is that the guidance lines are not to be considered regulations or laws to comply with, but rather a set of recommendations that should help ICO stakeholders better understand US SEC’s point of view.
Therefore, the interested parties that access the document should use it as a tool to determine if their eventual ICO may or may not have to respect the federal securities laws.
The latest instructions from SEC stem actually from the old Howey Test which is still used nowadays by the American legislator. Howey Test can help us determine if we can consider an investment in a common enterprise a “security”, with investors expecting profits from the efforts of a 3rd party.
Though it has been quite difficult for SEC to apply to good old Howey Test to digital assets and discover exactly the “common enterprise” and the “reasonable expectation of profits from the efforts of others”, the main financial legislator in the United States has underlined several times that its main intention is that of protecting the investors.
Cryptocurrencies used in an ICO go beyond their initial scope of acting as digital currencies and become some sort of securities in SEC’s view. In addition, blockchain projects that participated in ICOs deployed massive efforts to demonstrate they were actually selling utility tokens that could be used only inside the network and those purchasing tokens were interested in the business model.
If we are to be totally honest, we have to say that ICO participants have both purposes in mind. They want to support the business model and use the tokens inside the network, but they are also obviously interested in seeing those coins rising in price and having a little profit from their enterprise. Who wouldn’t want that?
In the end, we have to acknowledge that cryptocurrencies cannot be classified by using antique criteria from the previous century and we may need to find some better regulations if we are to take advantage of the new blockchain technology.