Last week the SEC issued a letter on the topic of cryptocurrency.
If you don’t know what cryptocurrency is, perhaps you have heard of Bitcoin. Despite the myths that Bitcoin is nothing more than a terrorist, drug-dealing, money launderers tool… it’s attracting the attention and investment of:
In fact, one group of cryptocurrencies—those built on the Ethereum network—have emerged a surprising function: raising capital.
Specifically, crowdfunded “token sales” have quickly surpassed then entire venture capital industry for fundraising!
This is why the SEC stepped in. Until now, anyone with access to the internet could raise millions of dollars almost overnight without any permission, license, or government involvement.
Of course, this has led to many scams and lost money. But as a whole, the total worth of all cryptocurrency (the “market cap”) exploded from $25 billion to over $114 billion in Q3 of 2017 alone:
Obviously, net of all the scams, some cryptocurrency investors are making big money.
The crypto market cooled off a bit over the summer, bottoming out at $66 billion on July 16. Since then it has returned to over $100 billion market cap.
This puts the SEC in a precarious position. Despite the free availability for anyone to tap into this growing pool of wealth that is provided by the function of cryptocurrencies… the SEC is tasked with regulating it.
The July 25 SEC letter did 3 things:
1. It specifically names one failed cryptocurrency—The DAO—and declared it was an unregistered security in violation of the 1933 securities law.
2. It went on to say that some cryptocurrencies are securities.
3. It went on to say that some cryptocurrencies are not securities.
All in all, the SEC’s ability to keep up with the explosive growth in the number of token sales is questionable. The silver lining for cryptocurrency investors is that as some cryptocurrencies register as securities, the flood gates are opened for big money to pour in and boost crypto market cap further.
To put things into perspective, cryptocurrency market growth in the past 7 months has been greater than the last 19 years of stock market growth.