Blockchain and Crypto Law Update: SEC Hunting and An Ignored Opportunity?

November 29, 2018

picture of ETH and BTC to accompany article about offshore cryptocurrency options Bermuda and Malta

Yes, the crypto market has been a roller coaster; speculation is flying, but we remain confident that Blockchain and cryptocurrencies are here to stay. Sure, expect some volatility and change; lest we forget the market storm that swooped through and devastated the late-nineties and early-aughts burgeoning Internet industry.

But don’t count them out. Blockchain and crypto are still the game-changers you know they are.

So in that spirit, let’s take a look at two legal-adjacent issues affecting today’s digital currency market. If you’re a crypto investor or startup in search of legal advice, get in touch.

The SEC Is Hunting ICOs: “Utility Tokens” v. “Security Tokens”

We cannot stress this enough: The Securities and Exchange Commission is laser-focused on initial coin offerings. They’re going after ICOs that could be viewed as securities, but don’t register as utilities.

What’s the difference between a “utility token” and “security token”? Several features separate the two, but most importantly, the former isn’t subject to as rigorous financial regulations as the latter.

When the SEC catches a security token masquerading as a utility, it doles out financial penalties, demands refunds, and the entity must usually agree to various disclosure and monitoring standards, which often prove prohibitive and expensive.

In other words, the goal is not to land on the SEC’s watch list — which you can avoid by consulting with an ICO lawyer before announcing.

If you need an ICO consultation, get in touch. Our cryptocurrency legal team is embedded in the niche. We have the answers, relationships, and solutions you need.

Are Entrepreneurs Ignoring A Profitable Crypto Niche?

According to a PwC report, the average IPO (Initial Public Offering) costs an average of $4.2 million, in addition to four to seven percent of the gross profits raised at the launch offering. Moreover, to avoid various regulations, many IPOs just stuck to Regulation D-eligible investors — people who earn more than $200,000 a year or enjoy a net worth of at least $1 million.

In other words, up until recently, IPOs were a rich-only game. But several years back, via the Jumpstart Our Business Startups (JOBS) Act, politicians changed the investment landscape by allowing for smaller investment pools. Two stipulations in the bill — Regulation Crowdfunding and Regulation A+ — permit startups to raise up to $50 million without the hullabaloo of a traditional public offering and associated investor standard regulations.

Currently, however, few companies are offering funding portals that allow for smaller-level funding rounds. Furthermore, of the ones that exist, only three services the crypto industry. The person looking for the next big thing may find it with a platform to facilitate compliant JOBS Act-eligible funding rounds.

If you have a blockchain or cryptocurrency business idea that needs flushing out, give us a call. We’ll review your plans and offer solutions to your tax, governance, and compliance questions.

Connect With A Cryptocurrency Lawyer Today

The Gordon Law Group is a full-service law firm that works with investors, entrepreneurs, startups, and established businesses in the blockchain and cryptocurrency space. We handle everything from contract negotiations to investment consultations.

Get in touch to begin the conversation. Let’s chat about making you wealthier and protecting your assets.

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