The U.S. Senate hearing on Tuesday saw the Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC) discuss issues pertaining to cryptocurrency and token sale regulation. SEC chairman Jay Clayton stressed that token sales will soon experience tighter regulations. Specifically, Clayton acknowledged that every token offering observed by the SEC to date is considered a security, and that should a token issued by a company increase in value over time depending on the performance of the company, it is considered a security, “You can call it a coin, but if it functions like a security, it’s a security.” This implies that the overwhelming majority of token that will be issued going forward will be considered as a security.
Clayton issued a stark warning for professionals “those that engage in semantic gymnastics … are squarely within the crosshairs of our enforcement division.” He also made a distinction between tokens issued in offerings and cryptocurrencies such as Bitcoin and Ethereum, classing the former as securities, and the latter as “true cryptocurrencies”, with public Blockchain networks with native cryptocurrencies either mined or produced by the public. In turn, this suggests a different set of rules are likely to govern the latter.
Gibraltar is making solid progress in becoming one of the world’s first jurisdictions to officially introduce token sale regulation. Last week, it was reported that the southern European state’s government and chief financial watchdog the Gibraltar Financial Services Commission (GFSC) have announced that in the coming weeks they will develop a draft law to regulate the token sale space, through developing rules for the promotion, sale and distribution of digital tokens within the territory.
According to lawmakers, it will be the first ever set of regulations developed specifically for token offerings. And among the main rules to be introduced will be the concept of “authorized sponsors,” who will be responsible for “assuring compliance with disclosure and financial crime rules,” according to one of the GFSC’s senior advisors. Laws will also be implemented to ensure token sale projects provide “adequate, accurate and balanced information to anyone buying tokens”.
And it seems not long after Gibraltar will be the turn of Abu Dhabi. Reports over the weekend revealed that the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) is preparing a set of regulations for cryptocurrencies, token offerings and cryptocurrency exchanges, although no date has been ascertained for when those regulations are expected to be released. The FSRA had previously warned about token sale risks back in October, and in early-February the UAE Securities and Commodities Authority (SCA) issued a warning to investors they should assume all risks associated with investing in digital tokens, as it is not yet regulated in the region. But with the recent pronouncements from Abu Dhabi, this looks set to change soon.
A regulatory agency supported by China’s banking and securities sectors is aiming to expand its oversight over token offerings this year. As per its annual meeting on Thursday, China’s National Internet Finance Association (NIFA) has stated that although token sales and cryptocurrencies were already on its radar last year, it will likely become a more permanent part of its 2018 agenda. According to a NIFA statement, special monitoring projects in 2017 included issuing warnings on virtual currencies, token offerings and ‘disguised’ token offerings. And 2018 “will be a critical year for the association to normalize and standardize its existing efforts put into these projects.”
NIFA was first initiated in 2015 by the People’s Bank of China (PBoC), and was formed in part to scrutinize projects breaking new ground in internet finance, such as peer-to-peer lending and cryptocurrencies. As such, this latest move shows that it is taking the crypto and token sale space more seriously as this rapidly growing market develops and matures. It also follows several warnings NIFA made last year regarding token sales and cryptocurrencies, especially one issued just a few days before the PBoC issued a formal ban on token sales.
In what is being perceived as move to combat the policies of Donald Trump, the US city of Berkeley, California, is considering launching a token offering to fund affordable housing. The move follows concerns from the city that Trump will cut its federal funding, having last year tweeted “If U.C. Berkeley does not allow free speech and practices violence on innocent people with a different point of view – NO FEDERAL FUNDS?”. The tweet followed student protests that led to the cancellation of a conservative speaker’s planned event. And with Berkeley being a sanctuary city, which means it doesn’t have to follow the government’s lead in enforcing immigration law, the Trump administration has recently been escalating the fight against such cities in a bid to reform immigration.
In response, therefore, a token offering could be a way for the city to help the increasing homeless population. Ben Bartlett, a member of the Berkeley City Council, has formed a working group on a token sale launch with the city’s mayor Jesse Arreguín, the UC Berkeley Blockchain Lab, and fintech start-up Neighborly. And Bartlett believes that a token offering could combat the current presidential administration, “Berkeley is the center of the resistance, and for the resistance to work, it must have a coin…We have a jobs explosion and a super tight housing crunch. You’re looking at a disaster. We thought we’d pull together the experts and find a way to finance [affordable housing] ourselves.” According to the plans, moreover, the tokens would be backed by municipal bonds, and investors could use them in crypto-participating shops in the city or even for apartment rentals that would accept the token.
