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.
Want to take part in Buying.com’s revolutionary eCommerce marketplace? Click here to participate in the token sale.
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.
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.