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UPDATE ON REGULATORY HYPOTHESES FOR BLOCKCHAINS AND CRYPTOCURRENCIES

Over the last couple of weeks, regulators and financial market authorities in many jurisdictions have issued decisions regarding blockchains and cryptocurrencies. Just a few days ago, the US SEC has made clear that it’s working on the hypothesis that cryptographic tokens sold to investors via Initial Coin Offerings (ICO) or other campaigns are to be seen as securities if the purpose of the issuance is to finance the issuer. Consequently, issuers must comply with the relevant capital market and securities laws. Additionally, the SEC has released a guide to ICOs about the three “Rs” of ICOs on its website: Risks, Rewards, and Responsibilities.

SEC’s chairman Jay CLAYTON made it clear that the agency will not adjust its rules anytime soon when it comes to cryptocurrencies and that while bitcoin remains a commodity, all ICO tokens — or coins offered through a fundraising process — classify as securities. While the SEC regards itself responsible for “security tokens” the Commodity Futures Trading Commission (CFTC) assumed responsibility for cryptographic commodities such as Bitcoins, Ether & Co in the US. The CFTC currently investigates suspected manipulations on cryptographic exchanges.

This also has an immediate impact on crypto-exchanges. Trading in tokens classified as securities or in coins classified as commodities requires a license from the respective regulatory authority. Trading with securities and/or commodities is a licensed business across all jurisdictions on this planet.

Finally, within the EU, the decision of the Austrian Financial Market Authority (FMA) to classify crypto-mining schemes as Alternative Investment Funds (AIF) is a first step towards regulating crypto-mining (read or article here). The operation of an AIF requires a respective license and/or permission from the competent financial market authority. This “AIF decision” is currently limited to Austria but is expected to be followed by other EU countries.

We have summarised the current state of the regulatory hypotheses in the graph above for a quick overview. Times are changing fast for the crypto-space, we guess. That’s good news for investors and investors protection.

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