SEC Extends ICO Crackdown to Advisors

ico regulation

Just the mention of the word “regulation” can scare some people. Although the ICO world had started as an unregulated frontier of volatility, that hasn’t been the case lately (for two reasons). One, the cryptocurrency world is becoming less volatile. Two, the ICO is becoming increasingly more regulated. With more regulation comes more transparency, but also higher compliance costs.

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Now, as opposed to just targeting ICOs, the SEC is targeting individual advisors, too. More specifically, the SEC is targeting SEC-investment registered advisors. Even more specifically, the SEC is delving further into where and how those advisors are storing their funds. As opposed to traditional methods of storing securities, digital currency is stored in a digital wallet.

SEC Crackdown on ICOs Continues

One of the almighty safeguards that the SEC has placed upon the ICO world is the use of what is known as the “lock-up period.” Similar to the lock-up period for Initial Public Offerings, the ICO lock-up period prohibits insiders from selling shares for a period of at least 12 months or longer. In theory, this mechanism gives way to increased project longevity. If the team and any insiders have to hold onto their tokens for this period of time, it will serve as a safeguard against insider trading that can take place in the early days (e.g., when the token first begins trading on an exchange).

Disruption too early in the ICO funding process can derail an entire project’s future. If all of the insiders are no longer vested in the program, then who is driving the project and what incentive do key people have to propel the project forward? The answer: not much.

ICO World Compared to Traditional Bonds and Securities

Now, the SEC made statements concerning how investment advisors should manage digital currency investments (in a similar way that they handle any other investment).

Currently, the SEC regulates all of the investment advisors that oversee and manage investment funds that total over $100 million dollars. This includes both “regular” investment advisors as well as cryptocurrency investment advisors. Many of the people that fall into this category are from places like venture capital firms.

According to Politico, the SEC mandates that investors meet this criterion to keep their investments at a bank or with a brokerage. However, it’s different for cryptocurrency because the digital currency is maintained in a digital wallet. Since there are differences, the SEC and ICO advisors are embarking on a new age of compliance.

Increased compliance isn’t necessarily a bad thing, however. In fact, security token projects and platforms that are in favor of higher regulation because it adds more transparency (and in theory more value) to the projects. If a project is willing to spend more money on higher compliance, that shows investors that the project is going above and beyond to emerge from a field that has been associated with fraudulent activity in the past.

In closing

This new probe will provide more transparency for the good projects while leaving the clandestine operators scrambling. In general, it will deliver more credibility to the industry in general, allowing good advisors to differentiate themselves even further from the bad ones.

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Joe Riviello -Chief Operating Officer- As a technology development and marketing expert, Joe creates engaging, conversion-centric e-commerce experiences and cutting-edge solutions that maximize growth and profit. Joe is the founder of Zen Design Firm, LLC, a 10 year old web development and marketing company designated by e-commerce giant, WooCommerce, as one of just a handful of experts in development on the WooCommerce framework. Joe also serves on the Board of Directors for the Northeastern Economic Development Company and has advised multiple Fortune 500 companies on strategic growth initiatives with a specialization in digital marketing channels.

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