Initial coin offerings (ICOs) may be less fashionable

than security token offerings (STOs) right now, but that hasn't stopped the United States Securities and Exchange Commission (SEC) from keeping its beady eye trained firmly on them. Ever since it published its investigation into the decentralized autonomous organization (DAO) in July 2017 and declared that ICO tokens can be (and often are) securities, it has been producing a variety of guidelines and warnings on ICOs for investors.

Initially, its notices were used to emphasize the potentially fraudulent or dangerous nature of initial coin offerings, with its first-ever Investor Bulletin on ICOs concluding with a summary of "potential warning signs of investment fraud." However, even if it followed this up with a number of investor "alerts,” its current guidelines have taken a more balanced tone, treating ICOs as an established feature of the financial landscape that may nonetheless require a certain degree of diligence on the part of investors.

And on the whole, the industry welcomes this newfound balance, as well as the more measured approach the SEC has taken to crypto. That said, certain industry groups are calling for additional and clearer guidance from the SEC, since there's a feeling that certain grey areas still exist in the commission's classification of cryptocurrencies, with the Blockchain Association speaking of a "growing sense of urgency" that such questions be soon resolved.

Current guidelines

Even though the SEC's updated guidelines have reportedly been available since last March, it only recently began promoting them on social media, with tweets from February and the end of November inviting the public to learn five things it needs to know about initial coin offerings. For the most part, these five points don't present any radically new information, even if they might prove useful to ICO newcomers. Nonetheless, their presentation as digestible nuggets of info — rather than as sections of longer reports or statements — reveals an appreciation on the SEC's part that cryptocurrencies are being sought out by “regular” consumers, as well as by experienced traders interested in alternative financial instruments. And such a realization is borne out in the basic, easy-to-understand format of the five guidelines, as shown and explained below:

  • "ICOs can be securities offerings."
    This is essentially a warning that cryptos offered in a token sale may fall under the jurisdiction of the SEC, and may therefore need to be registered with the commission.
  • "They may need to be registered."
    Once again, another warning that some tokens may need to be registered with the SEC.
  • "Tokens sold in ICOs can be called many things."
    A warning that simply having a different or unusual name won't stop a token from being classified by the SEC as a security.
  • "ICOs may pose substantial risks."
    A warning that some ICOs may be scams. This point also includes a warning that, even if an ICO isn't fraudulent, sold tokens are at risk of being lost, hacked or having their prices manipulated.
  • "Ask questions before investing."
    Advice urging consumers to obtain clear answers to any questions or concerns they might have before buying any tokens.

The SEC's guidelines also include four additional pointers each for investors and "market professionals" (i.e., exchanges, brokers). With regard to the extra investor advice, this expands upon the points made in the five warnings above. For example, investors are encouraged to research how tokens will be traded, to research the individuals and companies offering the tokens, to be aware that tokens may be traded internationally (and may therefore escape the SEC's enforcement), and to be suspicious of offerings that are "too good to be true.”

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https://markethive.com/group/cryptocoin/blog/the-secs-guidelines-and-statements-show-that-its-slowly-learning-to-accept-icos