The SEC’s ruling gives a reason for ICOs to pause.
Date: 17 November 2018
The US Securities and Exchange Commission (SEC) recently ruled that the ICOs of Paragon and Airfox were in contravention of regulations as they had not registered their tokens as securities. Each company was fined $250,000.
US investors can sue to recoup losses
There is a part of the ruling that should be of real concern to people considering ICOs, no matter where in the world they are based. This ruling was that US investors in ICOs considered to be securities have the right to sue projects and be compensated for their losses.
The wording of the order regarding Paragon was that the company should inform all investors that they had the right to sue “to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if [the purchaser] no longer owns the security.”
This will not be good news for Paragon. It is not clear exactly how much they raised in their ICO for the project to transform the marijuana industry. Reports ranged from $12 million to $70 million. Already in January of this year, it was facing claims from investors wanting their money back because they had found out that Paragon had not registered as required. It is not clear how much remains of the funds, assuming that there must have been operations to fund for the year and if they were holding their own and any other cryptocurrencies that value would have dramatically decreased.
It must now refund $12 million to investors. Airfox must refund $15 million.
Past ICOs that have included US investors also could be vulnerable to class action lawsuits, especially as investors struggle to deal with the past year’s bear market. This means that if following the ICO, investors had lost 80% and the current price of the tokens was 20% of what they had paid — not unrealistic in the current state of crypto meltdown — the ICO company would have to repay the original amount to “harmed investors”. Many companies would be bankrupted by such an action.
What about future ICOs?
According to Stephanie Avakian, co-director of the SEC’s Enforcement Division, dozens of ICOs are being investigated. This is in terms of previous statements from the SEC that tokens sold to raise capital were securities and subject to US laws.
However, even now after the latest cases, the SEC has not yet issued clear guidelines about what is not a security. Attorney Jake Chervinsky describes what the SEC is doing as “guidance by enforcement”. It is not setting the clear guidelines that the industry wants. Rather it is leaving room for its own discretion, and dealing with one settlement at a time. It seems not to want to have uncertain legal theories tested in court. So, the SEC is reminding token issuers to cooperate and comply with local laws, while leaving them somewhat vague and ambiguous.
Chervinsky warns that more regulation and investigation is probably on the way around taxes, money laundering, sanctions and more. He calls this “phase two” of crypto enforcement and expects it to be a slow and painful grind.
Blockchain attorney Stephen Palley is more optimistic. In his view, the law is clear enough, and ICO’s who tried to raise funds without registering correctly should not think that the law does not apply to them. He also doesn’t believe that the SEC is trying to warn off ICOs. Overall he is optimistic about the future for cryptocurrencies.
Did the Bitcoin Cash war take the whole crypto market down — or has the bubble burst?
Date: 21 November
There is much speculation about what has caused the crash in the cryptocurrency market since the start of the sell-off on 14 November.
There’s no question that there has been a crash. According to figures provided by Coincodex, the total market cap went from
· $214 billion on 11 November to
· $186 billion on 15 November and
· $150 billion on 21 November — and this despite a slight recovery on 21 November.
All of this is a very long way down from the high of $820 billion in January 2018.
A scan of the news shows that most people are blaming the Bitcoin Cash hard fork, the unpleasantness that has surrounded it and the ongoing war for hash power. However, other reasons are also being put forward.
The three (or four) reasons for the crypto collapse — Fortune
According to an article in Fortune, these are the 3 possible reasons for the crypto collapse.
The SEC announced that 2 ICOs were illegal and that the companies should pay large fines and also refund investors. The SEC is now thoroughly awake to what is going on in crypto and is likely to mete out punishment. This could have spooked many investors.
The Bitcoin Cash hard fork
The Bitcoin Cash hard fork on 15 November was a very messy affair and raised concerns about the centralization of Bitcoin Cash. This hurt the price of the BCH and the contagion could have spread to other currencies. However, according to the author of the article, the market has withstood forks before, and Bitcoin Cash itself has always been somewhat “dodgy and dysfunctional”. So, it’s hard to see how this could have had such a major effect.
Bad news from makers of mining equipment
Crypto investors could have been spooked by the news that chip-makers Nvidia and Advanced Micro Devices had reported sharp declines in sales for cryptocurrency equipment. This may suggest a waning of interest in crypto. However, is this decline really a symptom of the decline in crypto prices, or is it the cause?
In a similar vein, Susquehanna Group has warned its clients that mining ETH with a GPU is no longer profitable, and a Canadian miner has converted his Antminers into heating for his house.
In the opinion of the author of the Fortune article, none of these reasons on its own could have caused the crash, but the combination at the same time might have. This would be good news for crypto investors, as markets tend to recover from shocks like this.
A more worrying possibility is number four on the list:
The whole crypto industry is a “bust”.
According to tech exec Sam Gellman, $30 billion have been sucked into ICOs over the past two years, and Bitcoin has been around for ten years. Yet there is just about nothing to show for it, other than speculators. If he is right, chances are good that many more investors are going to be looking for the exits.
Capital gains tax
According to an article in Smartereum, the real reason for the Bitcoin crash is taxes. First-time investors in Bitcoin in the US are now having to pay capital gains tax on the profits they made in 2017. This could be as high as 39%. They’re selling now before they have to file the next year’s return, or they’re selling to raise the cash to pay this year’s tax bill.
US stock market retracement
According to VC investor Chris Burniske, there are fears that the US economy is heading for a crash similar to that of 2008. Investors will, therefore, be pulling out of any risky investments — and that would include crypto.
Sell-off of Ethereum
Burniske says that there has been a sell-off of Ethereum as a result of the “nose-dive” in the number of ICOs in 2018. The Ethereum blockchain has been the platform for most ICOs. During the 2017 boom, funds were raised, and these funds were often used to raise other funds. All of that has slowed.
Has the bubble burst?
A well-known critic of crypto, American economist Nouriel Roubini, aka Dr. Doom, wasted no time this week to tweet how he had been vindicated by the crash in the currencies. He noted BTC down almost 80% from its peak and other currencies down by up to 99%. In his view, the crypto bubble is bust for good.
Is he right? Or will this comment simply be added to the Bitcoin Obituaries list that has recorded 317 previous announcements that Bitcoin has died?