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ICOs Chilled: SEC on the Verge of Effecting a Year-long Freeze on US Token Trading

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The market is about to be chilled,

-Says Mike Lemperes, Coinbase’s chief legal and risk officer. His statement reflects the current mood of crypto developers and enthusiasts in the US, after months of uncertainty and excessive growth; now, it all seems to be coming to an end.

The current mood has been spurred by the SEC’s clarification last week of what has been long rumored – that several companies and startups associated with ICOs are under investigation. As a result, CoinDesk reports that several entrepreneurs and innovators are now surrendering to the idea that new cryptocurrencies which are created and sold to investors could be considered as utility tokens, denoting a digital commodity meant to represent the share of a blockchain protocol.

12-month Lock-up

US companies and startup projects looking to issue tokens as securities will not have it easy when trying to reach potential buyers or investors. Currently, there is no registered broker-dealer that is capable of trading security tokens in the US. CoinDesk says that majority of issuers have shifted to issuing these tokens under the Regulation D exemption, but are still bound by the 12-month lock-up stated in the rules.

During the MIT Bitcoin Expo last weekend, the issue came to the public limelight after a panel gave a negative outlook of the state of ICOs in the US. Nick Ayton, CEO of blockchain funding platform Chainstarter, went so far as to envisage that the US regulators will take each token as a security. He told the crowd,

The majority of exchanges are listing coins that are securities, and in my opinion, a big number of these exchanges are going to be closed,

A panel on regulation also gave a grim overview of the future of ICOs. Former CFTC chair and MIT professor Gary Genseler indicated that action on exchanges was on its way. “I think it is without a doubt that numerous exchanges will have to seek exemptions under alternative trading system [rules] because many of the exchanges, not all, have tokens that are securities trading on them,” he explained.

As Gensler, Ayton and others indicated, participants in this relatively new market are of the view that they know what the SEC may outlaw, but nobody can be sure until the regulator gives a clear and precise guideline that will address the cryptocurrency industry. At the moment, exchanges and companies that want to comply have been left scrambling to set their own rules, and are at a standstill until the SEC issues clear guidelines.

With the 12-month lockup rule that will hold back startups and other companies planning to issue ICOs, developers are inventing new ways to swerve the rules. Airdrops have been considered as an alternative, though they aren’t proving to be as popular and effective as ICOs.

What’s your take on the SEC’s expected regulations and the effect on the crypto and blockchain industries? Share your thoughts with us in the comments section.

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