What’s ahead for the crypto space in 2019? More clarity, but also more guidance and stiffer fraud penalties, regulators and legal experts predict.
Digital assets and initial coin offerings (ICOs) will occupy a “significant” amount of the Securities and Exchange Commission’s time in 2019, Jay Clayton, the agency’s chairman, said during recent comments in which he laid out his regulatory priorities for next year.
ICOs, Clayton said, “can be effective ways for entrepreneurs and others to raise capital,” but “the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered,” securities laws must be followed.
Pointing to the agency’s new Strategic Hub for Innovation and Financial Technology (FinHub), Clayton said the SEC’s “door remains open to those who seek to innovate and raise capital in accordance with the law.”
Joseph Mencher, a partner in the Intellectual Property and Social Media Practice Groups at Haynes and Boone LLP in Austin, told ThinkAdvisor in an email that in 2019, he expects regulatory changes “that continue to signal increased governmental acceptance of the use of cryptocurrencies, similar to the state of Ohio beginning to accept state taxes in Bitcoin in 2018.”
That being said, Mencher sees further regulation coming from the states, similar to New York’s Bitlicense, as well as new regulations “that greatly limit how initial coin offerings are performed, along with the associated enforcement of current (and future) laws with respect to ICO activities that were conducted in 2017 and 2018.”
He noted the SEC’s Nov. 16 action, in which the agency required Airfox coin and Paragon coin to “pay back their investors.”
The SEC, Mencher said, is likely “in the process” of developing ICO regulations.
That said, Mencher anticipates that the cryptocurrency space will “continue to develop at a rapid pace, with possible ETF approval” by the SEC.
More CFTC Guidance Likely on Virtual Currencies as Commodities
Michael Philipp, partner at Morgan Lewis who counsels financial services clients in futures and securities transactions, told ThinkAdvisor in an email that “courts and regulators are playing catch-up when it comes to cryptocurrencies, and to interpreting existing laws and regulations as applied to these new and innovative [digital asset] offerings.”
One important question is whether virtual currencies are “commodities” within the meaning of the Commodity Exchange Act and subject to regulation by the Commodity Futures Trading Commission, he said.