August 25, 2018 Articles

Cryptocurrencies Demystified and the SEC’s Regulatory Stance

Most initial coin offerings are securities according to the SEC, but they may not necessarily remain securities

Seoyoung Kim and Sumon Mazumdar

Since the first cryptocurrency, Bitcoin, was introduced in 2009, the crypto-world has exploded. There are now over 1,800 “crypto-currencies” (i.e., “digital assets,” “tokens,” or “coins”), many of which are traded on crypto-exchange platforms across the world, with a total market capitalization in excess of $350 billion.

A cryptocurrency is simply a set of code that is designed to serve a particular function. However, such functions differ considerably from coin to coin, and may even evolve for the same coin over time. Understanding a token’s function is critical from a regulatory perspective. As Commissioner Hester Peirce of the Securities and Exchange Commission (SEC) recently noted, some assets may take several forms (e.g., money may come in the form of a dollar bill or as “short term, revolving loans accessible through a credit card transaction”), but all forms of money are subject to the same regulation because they serve the same function.

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