Innovate Capital Law (www.innovatecapitallaw.com)

We advise entrepreneurs and investors in capital raising transactions using a tool box of new legal strategies, technology and business practices. 

This article first appeared in Triangle Business Journal in May 2019

Sometimes, I feel like I’m trapped in a time warp.  My clients and I are riding the crest of fast paced technology change, but it’s my job to advise how old laws will apply to new technology and the new business practices that technology creates.

In business, time is money.  So, we are impatient.  Legislators and bureaucrats operate at their own pace – usually glacial.

I do a lot of work in the Blockchain world, where technology and law and business meld together.  Because regulatory changes mean life and death to my Blockchain, Coins and Tokens clients’ businesses, I’ve been watching regulatory developments there very closely.

Regulatory changes in this world have been rapid.  It’s like we compressed the thousand years between the Fall of the Roman Empire to the Renaissance into a two-year period

Over the past two years we have seen four distinct phases with wild regulatory swings about Coins and Tokens that have been affecting Blockchain software development and financing.  During the same period, there have been wild swings in Coin values as the two powerful forces of human nature (greed and fear) fight for market dominance against a background of regulatory uncertainty.

• Barbarians at the Gate (2015 to Mid-2017) – The populist theory was that Coins and Tokens are not regulated because they are totally new – the same thinking that says airplanes are sinful because airplanes aren’t mentioned in the Bible. Both law and theology eventually expand to cover technological change, because they have to.  They may try, but neither law nor theology can ignore or stop technological change.
• Burning Heretics (July 2017 to February 2018)
• DAO Pronouncement by SEC that Coins and Tokens fail Howey Test and are securities (July 2017)
• Multiple SEC Enforcements against ICO fraud (Fall 2017)
• SEC Chairman Clayton Speech: Disbar ICO lawyers who disagree with SEC (January 2018) – the modern equivalent of burning heretics at the stake for claiming the sun doesn’t circle the earth
• Chairman Clayton Senate Testimony: Every ICO is a Security (February 2018)
• SEC Listens to the Heretics (April 2018 to March 2019)
• Bitcoin Blessed (April 2019)
• Director of Corporate Finance William Hinman Speech (June 2018) Ether Blessed and general guidelines for Utility Tokens and transformation from security to not a security (June 2018)
• Re-Branding: DIGITAL ASSETS and INNOVATION (June 2018)
• Appoints Digital Asset Czar (June 2018)
• Securities can transform into Not Securities (June 2018)
• Facts and Circumstance Test (June 2018)
• Invitation to Consult on Deal Terms (June 2018)
• Enforcement Actions (AirFox and Paragon) for not having exemption from registration (November 2018)
• Path Out the Dark Ages (April 2019)
• “TurnKey Jet” No Action Letter Approves First Utility Token that is Not a Security (April 2019)
• Framework for Investment Contract Analysis of Digital Assets by SEC Staff’s Strategic Hub for Innovation and Financial Technology (April 2019) provides detailed analysis of factors that cause some Tokens to be securities and other Tokens not securities.

So, here we find ourselves at the beginning of the Blockchain, Coin and Token Renaissance where:

• Balance and reason are replacing darkness and fear.
• Everything is possible.
• Nothing is guaranteed.
• If it was easy, everyone would be rich.
• Knowledge and guts are your tools.

What will the future bring?  Stay tuned to this column.  You’ll hear it here first.

Let us know how we can help you decide whether Digital Assets are for you and how to plan your offering.

Jim Verdonik  919-616-3225 JimV@InnovateCapitalLaw.com

Benji Jones 919-673-4301 Benji@InnovateCapitalLaw.com

© 2019 Innovate Capital Law (Verdonik & Jones, PLLC) For further information regarding the issues described above, please contact us.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.