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Why ICOs Might be Defined as Securities

October 17, 2018


Monday was not the first time that a regulator claimed ICOs should be defined as securities. It surely will not be the last, either.


On the other hand, we have also heard over and over, that regulation stifles growth.


Gary Gensler’s comments that were published by Bloomberg this week should be taken seriously, due to his background as the former head of the Commodity Futures Trading Commission. In addition to this fact, he has proclaimed the same notion, time and time again over the last few months.


Even if you find yourself to be a Crypto believer who sees any sort of serious attempt at regulating the space to be an unfair attempt at pigeon holing a new technology, understanding the other side of things is important. Could treating ICOs as securities possibly help the future growth of the Cryptocurrency niche?


First, it is important to understand that Gensler does not seem to think that all ICOs, past, present and future, should be placed under an existing regulatory framework as securities. Contrary to to what seems to be popular belief in discussions amongst individualized Crypto investors, all regulators are not the inherent enemy.


Gensler and others have been quoted as throwing their weight behind the innovative potential of the Blockchain industry. In most cases, however, it appears that the larger part of global government agencies are in agreement on Gensler’s primary argument.


Crypto projects are thought of as securities when they end up failing the Howey test. Despite this being the regulatory standard for determining if an asset is a security or not, it can be argued that the Howey test has its limitations.


As you may already know, failing it is based on meeting four conditions, which are often phrased as questions. Is there an investment of money? Is there an expectation of profit? Is the investment of money in one specific business? Finally, does the profit from the project come from any sort of third party, which includes marketing firms who are hired to promote the project?


According to the Coinist blog, essentially, if a team can prove that their coin is a utility token and not explicitly meant for profit, then it can avoid being labeled as a security. While this is only one example from one source on how the existing regulatory standard can fail, it is powerful in a sense.


A utility token can still be listed on Coinmarketcap as well as on Crypto exchanges. Therefore, it can also be traded. If you are not familiar with this phenomenon, just do a quick search for utility token and look at what projects come up. Once you have done that, then it is easy to see that a veritable horde of projects have escaped regulators, at least in theory.


In the end, we can ask two simple questions: if the Howey test does not work without fail, then what will? How can we come to an agreement that satisfies both governments and Cryptocurrency, as well as Blockchain professionals?


The answer might be that new regulatory frameworks need to be made.


It might also be that the traditional frameworks need to fail at a larger scale before this is done.




By: BGN Editorial Staff








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