How Crypto And Blockchain Technology Should Be Regulated Posted on : Dec 12 - 2017

With a Bitcoin worth $17,000, Bitcoin futures trading or about to be traded on Cboe and CME, and the market capitalization of all crypto assets above $450 billion, it seems crypto is here to stay.

And the regulators are taking notice.

Over the years, the Financial Crimes Enforcement Network, the Internal Revenue Service, and this year especially, the Securities and Exchange Commission, have all begun laying the groundwork for regulation of this space, which, despite its validation from Silicon Valley and Wall Street, is still a Wild West.

And many more regulators could have jurisdiction over cryptocurrencies.

"Blockchain and cryptocurrencies aren’t regulated as a technology generally speaking. It depends on the application. So, whatever they’re used for, it’ll fall under the appropriate regulator — and sometimes the inappropriate regulator," says Marco Santori, who leads the blockchain technology team at Cooley, on the latest episode of my podcast Unchained (on Google Play, iTunes, iHeartRadio, Stitcher or TuneIn Radio).

Our conversation took place before SEC chairman Jay Clayton on Monday released a statement on cryptocurrencies and initial coin offerings that reaffirmed the agency's earlier statements that whether or not a token sale constituted a sale of securities would be based on a facts-and-circumstances-based test. However, Santori and Klayman stated views in line with his statement.

The SEC has already indicated that the so-called Howey test, which arises from a case, SEC v. Howey, would form the basis for whether a token would be considered a security. An offering passes the test if it meets four prongs: being an investment contract in a common enterprise with an expectation of profits dependent on a third-part promoter. However, Klayman added, "You could have a token that might not on its own have the characteristics of a security, but if it’s being promoted as being a great investment as being a great investment that will increase X%, and they’re marketing that token as a security many believe that will have impact on the overall facts-and-circumstances test as to whether the token is a security." This was in line with Clayton's statement.

The two debated a proposal Santori made in the fall along with Protocol Labs, which held one of the biggest ICOs this year -- Filecoin -- called the SAFT Project, which proposes a way to issue a token in compliance with existing securities laws. The framework entails selling a security known as a simple agreement for future tokens (SAFT) to wealthy investors in accordance with regulation before the network launches, using that money to build the network View More