Your portfolio ticks below the last stop loss function, a spec of luck, a blip of hope.
This may change the tide of battle in our favour.
Months of downtrends, red candlesticks and sell offs, weeks of fear, uncertainty and doubt. News Everywhere, financial carnage, 40%, 50%, 60% losses on crypto-related investments since December 2017.
The debate rages on, understanding the complex nature of classifying digital assets. The crux of the issue. The utility of a token and how these currencies accomplish their task in this new digital age.
The subject matter at hand, digital assets being considered a Commodity or as a Security under United States, Federal Government Law.
This proves exceptionally difficult in this environment as the distinction between each has varying binding regulatory legality which must be adhered to when undertaking ‘business as usual’ in this space.
A Commodity is an economic good or service which holds value determined by the trading market as a whole. Commodities are governed by the United States Commodity Futures Trading Commission (CFTC) regulating the trading of commodities in Futures and Options markets. This regulatory department acts as supervision, protecting the investor through transparent, open operations, thus, prohibiting fraud and manipulation within these markets.
A Security is a contractual financial agreement between an issuer and an investor requiring registration with the United States, Securities and Exchange Commission (SEC). These assets impose a more complex regulatory framework as the department (SEC), oversees the legitimacy of these investment opportunities by imposing strict guidelines which must be adhered to, encouraging the protection of investor interests.
Regulators are concerned that presale of Cryptocurrency tokens may be classified as Securities due to investors purchasing tokens with hope that these tokens may increase in value over time. The (SEC) and (CFTC) hypothesise that issuers of these Cryptocurrency tokens through means of public crowd sales, for example Initial Coin Offering (ICO), are raising capital investment toward funding future project development, thus needing to be registered under (SEC) law.
According to Coin Telegraph, this discrepancy initially centred around Ethereum Foundation’s token presale event of 2014.
The Ethereum Foundation raised approx. 31,000 Bitcoins with the promise of developing a software platform used to create a decentralised network.
If this event was to be deemed a ‘presale of a security’ and classified as such, it would be subject to regulation under the (SEC) incurring significant fees, fines and scrutiny associated.
However, Ethereum today exists without third party control and the functionality of the network is completely implemented on a decentralised blockchain that is not reliant on a common enterprise, this case being the initial Ethereum Foundation.
Ethereum is not a security, it relies upon the utilisation of thousands of unaffiliated developers, miners and users, universally participating in building, trading and communicating on the network at any given time.
For example, Ether is used as Gas on the network for computational power, transitions and deploying smart contracts in real time, this decentralisation decouples the token asset from an investment to a token currency which is actively rewarded, traded and consumed by the network as a means to operate.
The United States, Securities and Exchange Commission outlined yesterday at Yahoo’s Finance All Markets Summit: Crypto, June 14, 2018, that Ethereum (ETH), will not be classified as a security under Federal Securities Law.
William Hinman, Director, Division of Corporation Finance, delivered the announcement;
‘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’ he said.
Hinman explains that applying regulation of the SEC laws to transition of Bitcoin or Ether would add little value and may not be required.
Regarding new projects launching ICO or implementing public capital raising, Hinman states, ‘The digital asset itself is simply code. But the way it is sold – as part of an investment to non-users; by promoters to develop the enterprise – can be, and, in that context, most often is, a security – because it evidences an investment contract.’
This explains tokens which require a centralised third-party authority to operate, encouraging the potential expectation of return may need to undertake (SEC) registration to comply with Securities law.
Each project must follow the economic realities of the enterprise to ensure trust, transparency and to ultimately protect investor interests.
The uncertainty that has remained present during the months of pending decisions regarding Cryptocurrency Security regulation has had a potentially negative impact on the uptake and growth of this new age scene, resulting in forecasted downward trends in Bitcoin and Ethereum markets.
This undecided judgement by the (SEC) has inhibited the desire for institutional investment and acted as a barrier of entry for large stakeholders to enter the market due to the lack of assurance of authenticity and protection of their investment.
While operating in this ‘grey zone’ investors are concerned about the specific laws which they are transacting under.
Hinman implies hope for the Crypto Community, conveying; “A digital asset which represents a set of rights that gives the holder a financial interest in an enterprise will likely operate under the (SEC) law. However, where there is no central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network (becoming truly decentralised), this would not fall under US Securities law.
This statement by Hinman encourages the possibility for a Cryptocurrency or Crypto-related project to begin as a security and then transform into another type of asset.
Hinman concludes that he is pleased to be a part of the process that can help promoters of this new technology comply with federal securities laws in the future.
Michael Halverson does not by any means encourage or persuade the investment/purchase or trade of cryptocurrency of any form and is not liable for any financial gains/losses that may occur in the Cryptocurrency Economy or World Economy. As an investment class, cryptocurrencies are speculative investments and investing in cryptocurrencies involves significant risks – they are highly volatile, vulnerable to hacking and capital loss and sensitive to secondary activity. Historic performance is no guarantee of future returns. Michael Halverson is free from any liability, including financial responsibility for personal decisions associated with personal finance. Before investing you should obtain advice and decide whether the potential return outweighs the risks. The ideas and opinions discussed here will change over time as more knowledge is accumulated.