On Wednesday, the SEC released a statement outlining its new Framework for ‘Investment Contract’ Analysis of Digital Assets. Following the publication of these new SEC blockchain guidelines, the initial reaction this week was an immediate panic. Many startup companies that are preparing for their own initial coin offerings (ICO) are concerned with acting outside of SEC requirements.
Industry Experts Urge Startups To Remain Calm
Industry experts quickly began reviewing the newly published SEC blockchain guidelines and reacted online. It became apparent to industry experts that the guidelines contained little information or clarification. Startups are requesting details for how the SEC plans to be proactive in its regulation of the cryptocurrency and blockchain industries.
Bill Hinman, as Director of the Division of Corporation Finance, calmed the concerns of startup companies. He stressed that the framework is not supposed to be an exhaustive overview of the law. In many cases, innovative technology frameworks are struggling to understand their compliance and regulatory requirements.
It’s just an “analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset” noted Hinman.
Furthermore, the Division of Corporation Finance recommended that the SEC not pursue enforcement actions against an unregistered token sale. This in turn calmed many startup companies in terms of their current activities.
In the past, the SEC has been slow to address guidance or clarifications on crypto-related matters. Additionally, the historical reliance on the Howey Test has been a source of difficulty for startups relying on past SEC dealings. The difference between utility and security tokens still is a conceptual problem for many startup business entities.
While the guidance discusses securities classifications, other questions remain unanswered. In particular, the SEC has yet to provide clarity around the idea of custody for broker-dealers holding cryptocurrencies.
Additionally this Wednesday, the SEC was busy issuing its first-ever no-action letter authorizing a startup’s token sale to go forward in the case of TurnKey Jet, Inc. and its tokens. The SEC approved the token sale provided TurnKey Jet, Inc. maintains tokens at a fixed price of one dollar and ensures tokens are for platform access only. The SEC is removing the possibility of profits being used for the TurnKey Jet, Inc.’s platform technology. Of particular note, the SEC’s letter is ensuring that the tokens cannot be transferable to any wallets external to the TurnKey Jet, Inc. platform. This potentially has now set the standard for utility tokens as non-securities combined with the issuance of Wednesday’s SEC blockchain guidelines.