Crypto insiders are pleased with the overall tone and rhetoric of the SEC and CFTC’s hearing before the Senate banking committee Tuesday.
“Regulation is going to come for this space, and it just matters that it’s being done in the right way and that regulators are thoughtful about how they enforce regulation,” CoinList co-founder and CEO Andy Bromberg said at Yahoo Finance’s All Markets Summit: Crypto in New York City Wednesday.
“What we heard at the hearing was incredibly positive — it was that existing regulations should be applied to this space. We heard really thoughtful discussion from both chairs about where this industry is going, and really about their desire to allow the innovation in this industry to continue and not stifle it with overbearing regulation. We walk away from that hearing very happy with the quality of discourse and how sophisticated they were with the issue,” he said.
ICO funding reached $5.68 billion, and $3.23 billion came from the fourth quarter of 2017. December saw the most ICO funding ever, exceeding VC investments in blockchain by over 16 times, according to a new CoinDesk report. While the appetite is expected to continue, the questions surrounding regulation remain largely unanswered.
CoinList & Indiegogo on regulation
CoinList, a platform for token sales, bills itself as a compliance-focused services provider. It has listed three ICOs to-date, but only after a thorough vetting process, including white paper analysis, proof of previous sales and founder experience. CoinList’s offerings include marketing to investors, handling compliance and sales, operating on commission. CoinList co-founder and CEO Andy Bromberg said he’s received over 1,000 applications.
Veteran crowdfunding sites are also expanding their business models to facilitate token sales. Jason White, head of ICOs and equity crowdfunding at Indiegogo, said it was a natural transition for the company.
“When we got into this game, it really looked to us like the large majority of token sales were being conducted in a regularly fast and loose way, potentially cutting corners. Frankly, we don’t envy the SEC or any of the regulatory bodies who have to figure out how to allow this innovation to continue while protecting investors,” White told Yahoo Finance.
Indiegogo, which also launched its equity crowdfunding platform in 2016, has partnered with FINRA-registered broker-dealer MicroVenture Marketplace and law firms that are “in regular touch with the SEC.”
“At the end of the day, we feel we have a duty to protect both the issuers on our platforms as well as the investors who are coming along. I think the entire ecosystem needs to know that their interests are being looked after. It comes down to having a meaningful, substantive conversation with the authoritative bodies and figuring out a path forward.”
The nuances of regulating ICOs
Despite both CoinList and Indiegogo emphasizing how compliant they are with the SEC, Tuesday’s hearing reiterated just how much of a patchwork the regulation currently is. During the hearing, Senator Elizabeth Warren asked SEC Chair Jay Clayton if any entrepreneurs had registered with the SEC when raising money through an ICO. Clayton acknowledged that none have ever done so.
There are two ways you can make money through an ICO — either register the security with the SEC or use an exemption that makes it possible for you not to register.
The 506(b) and 506(c) exemptions are the primary ways that ICOs which offer securities have been raising capital.
“What we see with the highest quality token sales, and certainly the ones that CoinList has had on our platform, [is that they’re] classified as securities but they lean on a formal exemption from securities law registration with the SEC. So, Clayton is absolutely correct. None have been registered,” Bromberg added.
Regulation going forward
The hearing did not specify whether or not legislative bodies would do away with these exemptions, but Bromberg believes it won’t be happening imminently.
“I don’t know that I would expect the SEC to approve any registrations right now for token sales, but if they’re classified as securities, they’re using an exemption of some sort. We feel very comfortable with that path forward,” he said.
Also, at the Yahoo conference, CFTC Commissioner Brian Quintenz told Yahoo Finance that he wants to support and encourage entrepreneurship as much as possible. “It’s important to put yourself in the shoes of the innovator. We’re responsible for putting guardrails in place, but letting the market decide what the value actually is.”
Clayton of the SEC and CFTC Chairman J. Christopher Giancarlo noted that they would need additional resources as well as collaboration from the Treasury, Federal Reserve and Congress to better regulate ICOs in the future.