2019 marked a year of strict regulations from financial authorities and government bodies worldwide on cryptocurrency and digital assets, and it looks like the crypto industry is in for another year focused on tightening laws on crypto assets, with IEOs coming under scrutiny of the US SEC.
The US Securities and Exchange Commission (SEC) has been more visible in the public eye taking a stance against digital assets, beginning with Libra, a stablecoin project established by social media giant Facebook. In the same period, the US Internal Revenue Service (IRS) reportedly sent warning letters to citizens who they suspected own cryptocurrencies, urging them to declare their possession of digital assets.
In the same vein, Initial Coin Offerings (ICOs) may be regarded as securities and need to be registered under the SEC, and to date, there have been no public offerings in the US. Since the 2017 ICO boom, ICOs have seen a rapid decline in demand, which made way for the popularity surge for Initial Exchange Offerings (IEOs) in 2019, where exchanges vet and push out ICO projects which have passed strict review under the exchange. Popular crypto exchange platform Binance offers this service under its Binance Launchpad.
Securities and Exchange Commission’s Building
17 hours ago on January 14, the SEC officially posted an investor alert and bulletin warning investors on the dangers and risks that come with Initial Exchange Offerings (IEOs).
“Be cautious if considering an investment in an IEO. Claims of new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, can be used improperly to entice investors with the false promise of high returns in a new investment space,” the post states.
The SEC regards IEOs as an “innovation on ICOs” and will be categorizing IEOs together with ICOs. This means that current laws applicable on ICOs may be applicable to IEOs as well, including mandatory registration of the IEO project in accordance with federal securities laws, and businesses have to provide full disclosure on their projects to authorities. SEC is also warning investors to look out for trading platforms promoting IEOs without touching on the possibility of the IEO coming under federal securities laws, as this may be an indication of fraud.
US SEC laws are only applicable to IEOs being offered on a domestic trading platform, but they are also reminding investors to exercise extreme caution when investing in IEOs from “offshore trading platforms”.
Given the stringent rules and firm anti-ICO stance from the SEC, it remains to be seen if they will start policing IEO projects as they have for ICOs. However, now that the SEC has officially issued a warning on IEO, we may expect further discussions to be held on this, and more rules may be enforced in this sphere.
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