According to Key European Regulator, ICOs Could be Derivative Activities
Our London Correspondent Nick Ayton looks at the recent announcements coming out of The European Securities & Markets Authority (ESMA) and considers the immediate impact on the ICO community…
On the back of a series of statements, ESMA today issued one about ICOs, highlighting their concerns for investors that ICOs can cover fraudulent and illegal activities. ESMA further warned investors they can lose their money, and there are now big impacts for ICO platform providers. Also impacted are those agencies, partners and service providers that are involved in promoting, talking about and handling any ICOs activities.
The biggest impact will be for firms (ICO platform providers) that are central to issuing a token as part of the ICO process. It is a stark reminder of their inherent obligations to do things properly and follow the rules that are already in place.
“ESMA is concerned that firms involved in ICOs may conduct their activities without complying with relevant applicable EU legislation.”
It very much looks like ESMA is getting to grips with the direction of travel and how they intend to legislate Initial Coin Offerings now and in the future. The main concern of ESMA is protecting investors, which is a bit crass given the lack of investor protection leading up to and after 2008.
However like most regulation, most of it is bad and protects the few. Now you may be thinking this announcement will only apply to the EU member states. Yes, this is true, but it also brings most ICO activities into the regulatory tent – from a corporate, legal, investor or ICO provider perspective where one or more participants is a European or based here.
99.9% of tokens are securities
Given 99% of ‘tokens’ issued to date, regardless of the white papers’ disclaimers that deny all knowledge and claim their token isn’t a security, it is! Now this presents a big challenge to the ICO market as regulators look to tidy things up and bring a stop to the wild west behaviours seen in the early part of 2017.
If you have issued a token that is a security, the project, the ICO platform providers, the PR and marketing firms fall within and are expected to follow these guidelines.
ICO service providers now on the firing line
For ICO platform providers the implications are significant and the costs of being able to support current legislation will rise, exposing the directors and owners of these businesses to compliance requirements. There are many ICO platforms pumping the madness, and they take on any project regardless and have no consideration of the token being a security or whether the project makes sense, whether the founders are credible and there is some form of governance. The bottom line is we are better off without these platforms as they place naïve founders in the firing line.
Is this announcement part of the streamlining if the ICO market that will push out bad actors? If so, it has to a good thing right…?
Will we see ICO platform providers having to be regulated themselves? Inevitable or likely…
The key statement!
The key part of ESMA’s statement was:
“ESMA stresses that firms involved in ICOs should give careful consideration as to whether their activities constitute regulated activities. Any failure to comply with the applicable rules will constitute a breach.”
The key wording here is firms, as in:
ICO platform providers that issue tokens, take in deposits of crypto and hold it (have custody);
PR and marketing firms that pump and advertise tokens that are financial instruments (without licensing and the right declaration);
Board Advisors that evangelise about the project, pumping a security;
Community Managers that offer incentives to buyers of tokens that are securities.
Then we have the whole pre sale process that offers deep discounts to inside investors at the expense of the public…
The knock on effects will be far reaching…
ESMA clearly states…
“Where ICOs qualify as financial instruments, it is likely that firms involved in ICOs conduct regulated investment activities, in which case they (ICO platform providers) need to comply with the relevant legislation, including for example: the Prospectus Directive, the Markets in Financial Instruments Directive (MiFID), the Alternative Investment Fund Managers Directive (AIFMD); and the Fourth Anti-Money Laundering Directive.”
AIFM vs MiFID
Most notably, ICO activities can also be linked to the Alternative Investment Fund Managers Directive, because the token is seen as a financial product and covered by MiFID that controls the advertising (pumping) and distribution of financial products. Therefore any ICO service provider that touches the ‘token,’ which is the financial instrument, has to fall in line.
Then there is the Prospectus Directive relating to proper projects’ correct disclosure and information for the investor to make an informed decision. Adequate information in the white paper with the likely additions of detailed ROI (returns) and revenue projects, governance around use of funds and the commitment for the founders to deliver on their promises and obligations will likely be required. When the white paper looks more like a prospectus, that it is when you have a token that is a security.
The debate rages…
When is a token not a security…?
It’s not a security when it is a currency, a reward for doing something on the platform, access to an ecosystem where tokens are earned like air miles. And that is about it.
Some tokens under eMoney rules allow more flexibility to be linked to a product or service and offer rewards for participation, such as a coupon or voucher that holds monetary value…
If the purpose of your token is to bring capital into your business, be under no illusions. In the US, UK and EU and in many other jurisdictions it will be considered a ‘polling instrument’ (comes under Collective Investment Scheme Rules) and therefore a ‘security’ because the capital will be used by the founders to build something…
Be safe…work with only the ICO providers that take things seriously, do the right things and have everything in place required to issue and promote a token that is a security.
Written by Nick Ayton
Bitcoin Prices Could Reach $196,165.79
How high Bitcoin prices could reach before the average Bitcoin investor sells it? Very high, $196,165 per coin – roughly 30x the digital currency’s current value.
That’s according to a just published LendEDU Bitcoin investor survey. “Believe it or not, that number and statement is true according to our polling data,” says Michael Brown Research Analyst with LendEDU.
The survey included 564 Americans that invested in Bitcoin. That’s a tiny sample, and therefore, the survey findings should be interpreted with extreme caution.
*As of November 15, 2017, at 2.30 p.m.
What will it take to reach that price? A world where Bitcoin, the “people’s currency,” will gradually replace national currencies in everyday transactions, with the help of the tech savvy younger consumers. “These investors could envision Bitcoin reaching that price with the help of time and younger consumers developing more of an affinity with virtual currencies, specifically Bitcoin,” adds Brown.
This digital world, in turn, will draw in older investors, who have yet to be sold on the idea of the Bitcoin’s potential. “As it stands today, the price of cryptocurrencies is rising rapidly yet many of the most influential, older investors are still not sold on Bitcoin and believe it will collapse,” continues Brown. “Just imagine when younger Americans develop more spending power and attempt to bring Bitcoin into the forefront of the U.S. economy? At that point, the price of Bitcoin will skyrocket.”
How long that will it take? Perhaps, a generation. “Jumping from the current price of $7,237.06 to something even remotely close to $196,165 would have to involve a generational transfer of economic power, meaning young consumers would need time to build their wealth and establish their presence in the U.S. economy to bring Bitcoin into the mainstream, much more so than it already is.”
All that sounds like a day-dream that it is extremely unlikely to come true. The technology that made Bitcoin will crush it, provided that big banks and big governments don’t crush it ahead of technology, as was previously discussed here.
Written by Panos Mourdoukoutas
India’s Supreme Court Calls on Government to Regulate Bitcoin
The Indian Supreme Court has asked the government to respond to calls to regulate bitcoin.
Three justices issued a notice to the central bank, the market regulator, the tax department, and several other agencies, asking them to answer a petition on the matter, the Hindu, an Indian newspaper, reported Tuesday.
The original petition to the court expressed concern that bitcoin can be used to conduct transactions across borders without a trace, making it an attractive tool for ransomware attackers and tax cheats.
According to the petition:
“The lack of any concrete [control] mechanism pending the regulatory framework in said regard has left a lot of vacuum and which has resulted in total unaccountability and unregulated Bitcoin (crypto money) trading and transactions.”
The petition goes on to state that bitcoin exchanges in India add 2,500 users per day, and that some 500,000 residents now hold bitcoin. As of 3:00 p.m. Eastern on Wednesday, the exchange rate between Indian rupees and bitcoin was more than 470,000.
As a result of its adoption, bitcoin usage may affect “the market value of other commodities,” according to the petition, which pleaded with the court for an “urgent direction” for the government to intervene.
The petition noted that some countries are beginning to either regulate or ban bitcoin, citing China’s crackdown on exchanges and Russia’s attempts to block bitcoin websites.
India has typically adopted a “wait-and-see” stance on cryptocurrencies, discussing their role in the world’s largest democracy but not taking concrete steps to regulate or prohibit them.
In April, the government formed a committee to study cryptocurrencies and propose new regulations.
Indian flag image via Shutterstock
Written by CoinDesk
Zimbabweans turn to bitcoin as cryptocurrency value soars to $13,500
Bitcoin surged in value to $13,500 in Zimbabwe after the country’s armed forces seized power on Wednesday.
The cryptocurrency is often seen as a risky bet because of its extremely volatile price, but desperate Zimbabweans are seeking to pour their money into anything of value as political turmoil deepens, sparking fears that hyperinflation could wipe out the value of citizens’ savings.
When Zimbabwe’s army seized power on Wednesday, it took over the state broadcaster and said it had placed President Robert Mugabe under house arrest.
Queues were seen forming outside banks on Wednesday morning in Zimbabwe’s capital Harare, with some sleeping overnight outside banks to withdraw savings, Reuters reported.
The price for a single bitcoin on Harare’s bitcoin exchange is close to double the price on global bitcoin exchanges due to the country’s liquidity challenges.
The current asking price beats October’s record highs in Zimbabwe of almost $10,000, according to Quartz.
“Interest in bitcoin has peaked as people cannot send money outside or pay for international transactions using formal banks,” Yeukai Kusangaya, a trade coordinator at the Golix bitcoin exchange in Zimbabwe, told Quartz.
“People have had to look for alternatives and bitcoin has been a useful solution which can be used to purchase goods on Amazon or to pay for vehicles from international suppliers and traders”.