One of the more elusive concepts in the world of initial coin offerings has been the idea of a cryptocurrency or token that is not a security.
Such a non-security token could be offered for sale without the offering being registered or exempt from registration. Trading platforms could permit secondary transaction of the tokens without the platforms registering as exchanges or alternative trading systems.
A whole host of regulatory obligations on issuers, brokers, advisors and others would evaporate if a particular token were found not to be a security.
Does any token exist that is not a security? So far, the SEC doesn’t appear to have encountered one. Starting in July of last year with its DAO Report, the SEC has declared one token after another, after another, after another, after another, after another, after another to be securities.
SEC Chairman Jay Clayton reportedly went so far as to say, “I believe every ICO I’ve seen is a security.”
As a result, many issuers have concluded that it may be prudent to ensure that intial offerings are either exempt from registration or registered, as in the case of one issuer who recently launched the red herring for its Regulation A+ ICO in the form of warrant offering.
However, concluding that all virtual tokens are securities may be going too far given the large number and wide variety of ICOs — 43 in 2016, 210 in 2017, and 297 so far in 2018 by one account.
After all, some of these “coins” actually look and function a lot like currencies, which one key federal statute specifically excludes from the definition of security and another is silent about.