Initial Coin Investments (ICOs) are risky. Most ICOs fail because of fraud and insufficient resource capabilities to meet business goals. This is just one of the reasons it’s important to be aware of any new Securities and Exchange Commission (SEC) guidelines.
Blockchain startups use ICOs to raise funding for their operations. ICOs are forms of crowdfunding for businesses involved in blockchain projects.
High Risks Persist
Despite the high risks, many have invested in ICOs, hoping for big returns. Unfortunately, the ICO sector is as safe as a boxing match. Companies such as leading cryptocurrency exchange, Binance, found success following funding from ICOs.
As the SEC continues to solidify its stance on issuance and use of cryptocurrencies, it is important that you keep abreast of regulatory changes which can guide you on how you are to interact with cryptocurrencies.
As ICOs may be considered security offerings under the SEC’s jurisdiction, those who find themselves investing in ICOs may need to get the assistance of a qualified lawyer and tax professional to hurdle over the implications of investing in an ICO. Considering securities law is an enormous field, acting in accordance with the guidelines can be challenging.
Regulatory Hurdles of SEC ICO Guidelines
The guidelines encourage lawyers and accountants of potential ICO participants to read 21 (a) of its investigative report. Securities offered and sold in the United States must be registered with the Commission or qualify for an exemption from the registration requirements. Digital asset exchanges should register as a national securities exchange unless exempted.
For others, the registration of the ICOs they invest in will be of great importance. ICOs registered as foundations in other nations like Switzerland can present tax incentives worth exploring. Some of such exchanges operate in the U.S. without registration. SEC warns that many platforms trading digital assets may refer to themselves as ‘exchanges.’
Behind the Corporate Veil
If you decide to invest in an ICO, it is important to make sure you are aware of third-party sources by which to verify information that the team behind the ICO provides. The ICO’s website usually provides information. However, it is often not enough to spot the red flags that may be lying underneath the whitepapers and litepapers that describe investments. Several websites provide background checks and research on ICOs and the team members behind the projects.
Team members with sound technical experience in blockchain or technology instill confidence in potential ICO investors. It is not uncommon for the competition to be a little too stiff, even for industry experts. Ironically, ICOs are with unique propositions require technical experience and ability which none of the team members possess.
The SEC suggests using investor.gov to find out more about investment professionals background and registration status. It warns against companies which have stock trading claims that are “SEC-compliant.” Anticipation grows for cryptocurrency ETFs and similar investment mediums. It is tempting to believe brand names in the crypto-space who offer such financial products in accordance with the SEC. Many exchanges don’t exhibit urgency in reporting factual information as they ought to. They are not registered in countries under the purview of the SEC. Many exchanges are registered in places like Malta where they are at considerable length from the full regulatory oversight of SEC.
ICOs are murky waters, at risk of failure like most start-ups. Flowers grow in dark rooms every now and again. There are a few successes out of the over 75% venture capital-backed projects in silicon valley. ICOs show far fewer success rates. Most ICOs are barely up to half of the young age of bitcoin-10 years.
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Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.