USA: Laws Related to Token Sales, Blockchain, and Digital Proof

Digital Currencies: Please refer to the CoinCenter chart Comparison of State Digital Currency Regulatory Initiatives of significant digital currency-related bills and regulations (including proposed and failed, signed into law, and currently in assembly) to learn more about state political law and legal direction on blockchain technologies. This video also provides an overview of how token sales fit with securities regulations.

In July 2018 Coinbase Inc., one of the most popular cryptocurrency trading platforms, received approval from the Financial Industry Regulatory Authority (FINRA) to acquire Keystone Capital Corp., Venovate Marketplace Inc. and Digital Wealth LLC. This move could allow it to become one of the first federally regulated venues for trading digital coins deemed to be securities and place the businesses under more federal oversight. Coinbase has primarily been regulated by a patchwork of state authorities. More information here.

In July 2018, the (SEC) once again rejected an effort by investors Cameron and Tyler Winklevoss to list a bitcoin ETF. A year after the SEC turned down a rule change request from the Bats BZX Exchange that would have paved the way for the bitcoin-tied investment vehicle. The SEC highlighted that its decision doesn’t constitute a judgment against cryptocurrencies and blockchain in general, but rather the structure of the proposal that was pitched, writing: “the Commission is disapproving this proposed rule change because, as discussed in detail below, BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.” More on this ruling and the state of Bitcoin ETFs here.

In June 2018, the Securities and Exchange Commission (SEC) announced that leading coins Bitcoin and Ethereum (ETH) are not securities. However, many, but not all, ICOs are securities and will come under the regulatory control of the SEC and relevant securities laws. SEC Corporation Finance Director William Hinman said that “Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions.” Hinman’s argument that Ethereum is now sufficiently decentralized to disqualify it from a securities classification appears to indicate that the altcoin will be given the all-clear and not be subjected to heavy regulation by the SEC. Hinman’s full announcement can be read here.

In July 2017 the SEC ruled that ICOs and Token Sales are sales of securities following an investigation into a German corporation behind a group called “The DAO” (for “Decentralized Autonomous Organization”) that raised $150 million in ICO last year.

The U.S. Financial Crimes Enforcement Network (FinCEN) and Commodity Futures Trading Commission (CFTC) have not yet made a statement on the legality of ICO mechanisms. On July 27, 2017, FinCEN assessed civil monetary penalties against a foreign located cryptocurrency exchange (BTC-e) for violating US anti-money-laundering laws.

In 2013, FinCEN submitted guidance on “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies”, referred hereafter as “the Guidance”.


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