SEC Eyes Initial Coin Offerings for Regulatory Oversight

The Securities and Exchange Commission is looking hard at Initial Coin Offerings. This information comes after SEC recently piped up, saying ICO’s need to protect their investors. The regulation agency may be getting more aggressive because cryptocurrencies are growing more visible and valuable. Regulators are especially concerned with “ICO’s. The reason is they lack transparency and oversight.

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A Reuters article published Wednesday said, “The Securities and Exchange Commission is said to be taking a hard look at the increased use of such offerings, with the growth of so-called ICOs surging in recent months. The overall value of the coin market is estimated at over $90 billion, and the frenzied activity has fueled a record-breaking rise in the price of bitcoin, which hit an all-time high of $2,911.86 this week, according to the CoinDesk Bitcoin Price Index (BPI)”

However, the article was not all doom and gloom. It mentioned some believe the current feeding frenzy is a “second dotcom bubble,” which could alter the technological demographics of society and transform the human way of life. Needless to say, the regulators believe everyone needs protection from these startups as they attempt to generate revenue from their projects.

The Rising Tide of Concern and Fear; ICO Scams

Many people are worried about blockchain-based companies because they are virtually free from any type of official scrutiny. They mine or generate their coins, and then sell them to early investors in “initial coin offerings” to fund their company’s projects. And generally, these coins have had an opportunity for a lot of upward momentum on the marketplace because of early speculators looking to cash in.

However, in the past, these ICO’s have not always been safe for investment or speculation. There have been accidents, but there have also been sketchy projects that reeked of pump and dump and pyramid schemes. One accident occurred when a decentralized application Slock.It (built on top of Ethereum’s blockchain) was hacked for about 3 million ether. J.P. Buntinx covered the story for bitcoin.com. He said, ‘Over the past few days, two separate attacks have plagued The DAO. The first attack saw over 3 million ETH being drained from their wallet and transferred to a child DAO. On Sunday, June 19, news broke about a second similar attack taking place.”

Other projects may be outright scams. At this stage of the game, it is difficult to determine if a project is legitimate or not. In theory, it would be easy for an Initial Coin Offering to pump their tokens, dump, and run. One Steemit article writer Moonjelly made a satirical post about how easy it is. They said:

Make it as complicated as possible, throwing so much mumbo-jumbo as you possible can. Keywords are: Tokens, Assets, Blockchain, Ledger, Disruptive, Decentralized, Shares, Platform, Intermediary, Publishing, Trustless, Fixed, Digital. Create a new Proof Of System! As many know the most popular are Proof Of Work and Proof Of Stake. And hybrid of these won’t cut it anymore so you need to get creative. Proof of Incarnation sounds great, it involves checking for certain unadulterated information to create new blocks or something like that, we can revise this later!

Is Regulation on the Horizon?

With how easy it appears to initiate an ICO scam, or for investors to lose millions of dollars—because a line of code is incorrect—it seems natural for politicians to want to regulate the industry. However, there is not a simple strategy for governments to accomplish this task. Various agencies have not even determined what asset class many cryptocurrencies fall within. Furthermore, banks, governments, and regulatory agencies sometimes appear confused about the technology. For instance, investment bank Morgan Stanley recently mentioned that for cryptocurrencies “to grow” they would need to be regulated, and a politician from Australia loosely admitted government does not know enough about them to do anything.

As of right now, it is unclear whether regulations for ICO’s are looming on the horizon, but there is a lot of hullabaloo being stirred up within official circles about how to effectively control cryptocurrencies. The irony of the situation, however, is not lost on the crypto-community.

Do you foresee governments issuing regulations against ICO’s soon? Will it impact the world of cryptocurrency? Let us know in the comments section below.

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