As 2019 comes to a close, we take a look back at some of the most significant developments in the world of blockchain and crypto. These are the four biggest crypto stories to hit the news this year, and why we think they’re so important to the future of the industry.
Blockstack is a decentralized computing platform and app ecosystem that will allow companies to create their own blockchain apps that scale. In July, Blockstack received SEC approval to launch the first-ever Reg A+ token offering. By mid-September Blockstack announced that that its SEC-qualified token offering had ended. More than 4,500 investors— including retail investors in the US— participated in the offering which raised over $23 million.
Why it matters: Blockstack’s approval opened the door for other companies to follow (including CERES). Many people believed that the SEC would never approve a digital token offering. Blockstack’s approval not only proved that it could be done but also demonstrated that the SEC’s involvement was not a hindrance to innovation. While CERES had hoped to be the first to market, it was not to be. However, we’re excited that Blockchain was able to take this first step as it paves the way for CERES and other companies and put the almost unlimited potential of the blockchain in the spotlight for niche and mainstream investors alike.
In June, the SEC sued Kik, saying they sold Kin tokens to investors “without registering their offer and sale as required by the U.S. securities laws.” Overall, Kik sold $100 million in Kin tokens to unsuspecting investors. And all of this came after Kik shut down its popular messaging app (Kit) with millions of active users and 80 employees (who were subsequently laid off).
Why it matters: The Kik lawsuit acted as a warning for other cryptocurrency issuers who wanted to launch their tokens outside of the regulatory framework. Kik demonstrated what not do to. Their reckless regard for investors’ money and their willingness to scrap everything to fight the SEC over an issue that, in our estimation, didn’t need to be fought. Kik served as detriment to the industry in general, but a great foil to those doing it the right way. It should also serve as a red flag for investors who are considering buying tokens outside of the oversight of the SEC.
In October, the SEC issued a restraining order against two offshore entities that raised $1.7 billion in investor capital from an ongoing digital token offering in the U.S. and overseas. According to the SEC, the company started raising funds back in January 2018 to create its own blockchain network. To raise the money, they sold 2.9 billion pieces of their digital token (Gram) and promised investors that they’d be able to cash out their investment in U.S. markets no later than October of the same year. However, they never registered Gram with the SEC. As part of their statement, the SEC said, “We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”
Why it matters: The Telegram Lawsuit showed investors the true risk of buying unregulated crypto assets. If Kik’s lawsuit wasn’t enough to cause pause, Telegram’s should have done the trick.
On December 18th, the SEC announced that they had voted to change the requirements to be considered an accredited investor. At present, the limitations are exclusively based on income and wealth. The new qualifications would take a more sophisticated approach to approval and include factors like experience, knowledge, and certifications. They also opened up the qualifications to allow Tribal governments to enter the markets. Voting will remain open for 60 days as the SEC hears from the public. Perhaps 2020 will see a flood of new capital from newly minted investors.
Why it matters: The historic requirements to become an accredited investor have shut out all but the wealthiest from private markets. The SEC has long claimed that this "protects investors” by welcoming in only sophisticated, knowledgeable investors. Yet SEC Commissioner Elad L. Roisman (who is responsible for 1/5 of the votes any time the SEC brings a case against companies that violate Reg D or provide inaccurate information the public) is not an accredited investor. In his own words, “One might think I would be capable of understanding the risks of a private investment opportunity and recognize the information I would need to make an informed decision.” Opening up qualifications will allow savvy investors like Roisman to come to the table. he more investors who are allowed at the table, the more global markets will thrive. Plus, a broader access to investment opportunities will have widespread effects on wealth inequality and boost local economies.
If 2019 taught us anything, it's that crypto and blockchain are here to stay, and it’s time we get serious about regulation. In business, the saying goes, “change or die.” In crypto, it may just be “register or die.”
As we head into 2020, it will be interesting to see how many other companies fail to yield to the SEC and live to regret the decision.