The United States Securities and Exchange Commission (SEC) is reportedly scrutinizing the rise of Initial Coin Offerings (ICO), as indicated by Reuters. The publication estimates that the size of the ICO market is around $90 billion and the increased activity around these financial instruments had pushed the value of bitcoins to $2,911.86 on Tuesday.
The ICO is the cryptocurrency analogy for the Initial Public Offering. In an ICO investors get virtual coins or tokens instead of a share in a company or fund. Recently in India, BitcoinGrowthFund, a startup fund for blockchain companies, raised $2.5 million as part of its ICO. Small investors were invited to invest in the offering by buying tokens called MCAPs and the funds are used to mine various cryptocurrencies like Bitcoin, DASH, Ethereum, Monero, Litecoin, Z-cash, and others. MCAP owners will be paid dividends monthly based on returns from investments in the currencies. Token owners can also trade and exchange these token amongst themselves and other users at any time. A part of the fund will also be invested in other blockchain projects.
However, there is contention on the issuance of such tokens are the equivalent to the creation of a new security and therefore if they should be regulated at all by the SEC.
Reuters added that the having a token does not mean having a stake in the business. In certain cases, deals are structured where investments in the tokens could lead to a future share in revenues in a venture. There are also cases where investment can be compared to crowd funding and tokens can be redeemed for cash at a later date at bitcoin stock exchanges.
Regulation situation in India
In India, the Securities and Exchange Board of India (SEBI) which regulates the securities market has not taken a stance on ICOs. However, it came out with proposals for crowd funding in 2014 but this proposal does not touch upon reward based crowdfunding that is common on platforms like Kickstarter and would apply to services like LetsVenture. According to these proposals only accredited investors registered with a crowdfunding platform can invest in equity-based crowdfunding campaigns. Also, only Indian start-ups or SMEs can raise funds through these platforms.
Meanwhile, in April, the finance ministry said that it would constitute a committee to submit its views on virtual currencies. The committee will look into:
– the present status of Virtual Currencies both in India and in the rest of the world;
– examine the existing global regulatory and legal structures governing Virtual Currencies;
– suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc.
Meanwhile, the RBI has not given any license or authorization to any entity to operate such schemes or deal with Bitcoin or any virtual currency. It said that any user, holder, investor, or trader dealing with cryptocurrencies would be doing so at their own risk.