#CRYPTO BAR DRIVER#

The holder is not entitled to interest payments, for example, or to vote in the shareholders’ meeting. Essentially, such ‘utility’ tokens have similar rights as a gift voucher from a department store, explains Ang. There are far-reaching implications of ICOs not being structured as securities. Legally, ICOs currently exist in a grey area, with arguments being made both for and against them being new, unregulated financial assets. Rather than conferring ownership rights, the digital tokens might rise in value to benefit the investors. Most ICOs work by having investors send funds (usually bitcoin or ether) to a smart contract that stores the funds and distributes an equivalent value in the new token at a later point in time. It’s akin to an initial public offering, in which investors purchase shares of a company. ‘A key reason why an ICO investor needs to take responsibility for, and be aware of, what they are buying is because issuers might choose to structure their offering so that the tokens might not be construed as securities,’ says Adrian Ang, a partner at Allen & Gledhill and Co-Head of the firm’s fintech practice.Īn ICO is a largely unregulated way for startup companies to generate capital through crowdfunding by issuing crypto ‘coins’ or ‘tokens’, where investors can raise money in a cryptocurrency as an alternative to venture capital.

Yet, these may or may not give holders certain rights – and, if not, will have purely speculative value.

#CRYPTO BAR DRIVER#

The Swiss Financial Market Supervisory Authority, while broadly welcoming ICOs, has also threatened enforcement action against ICOs that deliberately flout securities regulation and anti-money laundering rules.Ī key driver behind the soaring popularity of ICOs is their ability to enable startups to raise funds by selling cryptocurrency ‘coins’ or ‘tokens’ via crowdfunding. In December, scrutiny of cryptocurrencies by the Securities and Exchange Commission led to an emergency asset freeze to stop a fast-moving ICO fraud that raised up to $15m from thousands of investors by falsely promising a 13-fold profit in less than a month.

What’s worrying for those investors that don’t want to see ICOs hindered by excessive regulations are noises in markets like the US. Such inconsistency is breeding uncertainty among market practitioners. ‘ICOs are looking to avoid being defined as a security, so trying to regulate them seems to conflict with the purpose of ICOs and cryptocurrencies,’ he adds. ‘A key topic in various jurisdictions is to try to put ICOs under the umbrella of the local securities laws, but there is no best practice yet globally,’ says Alexei Bonamin, a partner at TozziniFreire Advogados and Membership Officer of the IBA’s Capital Markets Forum. Japan, an early adopter of ICOs, has more than ten regulated bitcoin exchanges, controlling a large chunk of the global market. Regulators in these jurisdictions are now looking to treat a coin that functions like a security in a similar way as it would be under their existing domestic securities laws.

It’s a different story in many other developed economies with strong legal frameworks, including Australia, Canada, the European Union, Hong Kong, Singapore, the United Kingdom and the United States. South Korea followed suit, introducing an ICO ban later that month. It also launched an investigation into 60 local platforms dedicated to managing them. In September, the Chinese government quickly moved to ban ICOs, viewing them as an illegal means of financing.

Crypto bar