This Loophole of Sorts Could Lead to Cryptos and Crypto Exchanges Being Subject to SEC Rules and Regulations

Ethereum, TRON, OMG, NEO, EOS, and more are all ICO platforms and many originated as ICOs. If the SEC considers ICOs securities, then about 1/2 of cryptos are securities.[1][2][3]

UPDATE JUNE 2018: The SEC announced that Bitcoin and Ethereum are not securities. It is unclear if other major coins will avoid being labeled securities as well. With that said, it is confirmed that many (but not all) ICOs ARE securities.

If 1/2 of cryptos are securities, then every crypto exchange in the US has to comply with SEC rules (or stop trading most coins).

Also, technically speaking, it means that about 1/2 of cryptos are unregistered securities that had illegal initial offerings.

That is a line of logic that you need to be aware of as a crypto investor, especially if you are in deep in a coin that is an ICO or spits out ICOs.

This isn’t a thing that is happening for sure, instead the SEC and media keep hinting at it. They have been hinting for a while, and I have been writing about it for months, but the hints are getting stronger and louder (meaning it might be time to take them seriously).

In this respect I think it is best to prepare for this mentally, because if not, it will likely blindside people. When concrete news hits it is likely to be announced in a media blitz and used as FUD, and logically that could lead to many losing money on paper and panic selling.

In my opinion, this loophole of sorts is likely to lead to more regulations on cryptos and crypto exchanges in the US, but not likely to fundamentally change how consumers interact with cryptos in a negative way. That is, if anything even happens at all.

Learn more about the SEC and cryptocurrencies to get a sense of what be on the table for the future.

“I’ve never seen an ICO that wasn’t a security….

….If you want to know what our markets would look like with no securities regulation, what it would look like if the SEC didn’t do its job? The answer is the ICO market.”

SEC Commissioner Robert Jackson

Bottomline: It is very likely that if cryptos are increasingly regulated that it will actually spark on more adoption long term (so like, the opposite of a ban). However, given the history of crypto, it wouldn’t be shocking to see a short term panic if and when the news hits. Thus, why not be aware of this potential world now and avoid being surprised down the road if and when?

TIP: SEC regulations and rules tend to have a light touch. Eventually they stopped ENRON and Bernie Madoff, but there are a number of really volatile stocks and questionable companies operating under the eye of the SEC without much of an issue. It is really just about following a basic set of rules when it comes to things like token sales and exchanges. Still, cryptos being regulated in the US is likely to cause a short term global panic (because that is how crypto operates; they act like they had no idea news was coming and then they panic sell), and thus it makes sense to be aware of potential FUD before it goes mainstream and to brace for that and position yourself in a way that suits your tastes.

On retroactive action: It is unlikely that even if it was deemed that past ICO sales were illegal that action would be taken retroactively. Or at least this seems to be the opinion of securities lawyers and former regulators.

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Citations

  1. Ethereum falls on report that the second-biggest cryptocurrency is under regulatory scrutiny. CNBC.com.
  2. SEC is cautiously open to initial coin offerings, commissioner says. CNBC.com.
  3. Is the SEC Gunning for Ethereum and Ripple? Fat Chance. Fortune.com.


"There is a Chance Ethereum and Other ICOs are Securities" contains information about the following Cryptocurrencies:

Ethereum (ETH), Tron (TRX)

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