Cryptocurrency Regulations And How To Meet Them?
The cryptocurrency market exploded in popularity this year. It’s estimated that the total value of assets in the cryptocurrency market is roughly $300 billion. While cryptocurrencies have many benefits, they also bring with them a number of inherent risks and potential problems. One such risk is pending government regulation, which poses unclear externalities and implications. This article will explore some of the ways that businesses can remain compliant with regulations, as well as some steps that should be taken before launching an ICO(initial coin offering).
Role of Regulations
Regulations are made to protect investors, the public, and the cryptocurrency market as a whole. Crypto-asset platforms are still evolving, but regulators will start to apply various regulations to the crypto space depending on where you are located in the world. This means that regulatory compliance is becoming more important than ever as money laundering concerns rise and investors look for safe places to park their funds.
The ICO Market
ICOs are a form of crowdfunding with many use cases, but the primary goal is to raise funds for new cryptocurrency projects. This is often done by selling a new digital currency at a discounted rate, which then appreciates in value as more people buy into it.
For example, you could buy into an ICO from a company called BitTrex(no relation to the cryptocurrency exchange) that promises to create a new type of digital wallet for storing Bitcoin and other cryptocurrencies. In order to purchase your share of this project, you send them some money and in exchange, you receive tokens—a sort of digital currency that can be used only on their platform. The price per token starts out high because there are only 1000 tokens available at first; however, if the project becomes successful and gains more users over time then those 1000 tokens will appreciate in value as demand rises—so buying early would be wise in such a scenario.
Compliance with Legal Requirements
As a cryptocurrency investor, you should be aware that the SEC requires all companies offering digital tokens to register with them and provide information about the initial coin offering (ICO) process. In addition, it is important for token issuers to comply with relevant laws in their jurisdiction. The CFTC regulates virtual currencies as commodities and considers tokens found used in the purchase and sale of goods or services as commodities. Thus, these tokens are subject to certain requirements under federal commodity laws. Similarly, the IRS treats cryptocurrencies like property for tax purposes(see IRS Notice 2014-21). Finally, FINRA also has rules designed specifically for ICOs that include registration requirements for broker-dealers involved in this type of investment activity(see FINRA Rule 5121).
Steps to be Taken Before Launching an ICO
Before you launch an ICO, you should identify your company’s regulatory requirements, tokens, and ICO.
This can be done by:
● Determining the legal status of crypto as it applies to your jurisdiction. For example, Canada has not yet fully legalized cryptocurrencies and tokens; therefore they may not be considered a currency or security under Canadian law. The same applies to many other countries around the world. In this case, it would likely be to attain an attorney’s services to determine how cryptocurrencies are treated under relevant laws in order for proper classification prior to launching an ICO(or at least understand what kinds of laws apply).
● Understanding whether there’s any existing legislation for protecting investors in their country—this will help determine whether investor protection rules apply during your token sale and post-sale activities.* Understanding what type of token(s) qualify from a legal perspective varies–there are different types with different properties; some may require registration with government departments/agencies while others don’t need anything besides being registered as a corporation.* Understanding if there are any regulations specific to securities offerings within one’s country determines whether certain elements such as prospectus requirements apply during an offering period.* Finally, if applicable, gain an understanding of all tax rules concerning capital gains.
As the US government continues to look into the cryptocurrency market, it’s important that businesses remain compliant.
There are many regulatory agencies looking into the cryptocurrency market, examining subjects such as the different types of existing stablecoins, asset classification, privacy laws, and more. Therefore, there are many legal requirements that businesses need to meet before launching an ICO, and an uncertain regulatory environment requires potential adaptations. There are also many steps that businesses need to take before launching an ICO, such as registering with U.S. regulators and obtaining licenses from state or federal governments if necessary.
The Takeaway
The main takeaway here is that businesses need to be aware of the laws and regulations in their country. They must also understand the ICO market and make sure they are compliant with all legal requirements before launching an ICO. It is also important to consider the pending regulatory changes and their impact.
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