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This blog is based on an article by Jim Verdonik that was published by Triangle Business Journal August 2, 2019.
Cryto Skeptics had a great year last year. Every digital asset crashed.
But have you noticed that Crypto, Coins and Tokens have been making a big come-back the last several months?
Bitcoin hit a low of about $3,200 in December 2018 after reaching over $19000 in December 2017. Terrible, Right? But by June 2019, Bitcoin exceeded $12,000. Bitcoin was about $9,600 when this article was written. Who knows what the price will be when you read this?
Ethereum peaked in January 2018 at about $1,30 and hit a lot of about $80 by December 2018. Recently, Ethereum was trading at about $210.
Crypto currencies are like all thinly traded markets. They are subject to wide price swings and are not for investors who can’t stand the heat in the kitchen.
If we focus too much on these fluctuations, we’ll miss the big picture, which is that blockchain based products and services (of which Bitcoin is the most famous example) are making major commercial and regulatory breakthroughs.
Let’s look at three examples:
Tezos
Blockstack
TurnKey Jet
Tezos Blockchain Makes Headway in International Security Token Offerings
Recently, BTG Pactual, a big Latin American investment bank, and the Dubai-based asset manager Dalma Capital announced plans to use the Tezos blockchain to launch security token offerings to “address a deal pipeline in excess of $1billion for existing and prospective token issuances,” the companies’ press release. Tezos, is a “self-amending blockchain” and smart contracts platform that is validated by proof-of stake and has on-chain governance, as opposed to the off-chain, proof-of-work model followed by Ethereum.
Any type of asset can be represented by a token. Their deals will tokenize a range of traditional and alternative investments on the Tezos blockchain, including projects with global sports clubs and equity and debt interests.
Blockstack and Regulation A Offering
Like Ethereum, Blockstack is a developer-focused open source platform. Blockstack is an easy way to build decentralized apps that can scale and claims that more than a hundred independent developer teams that have built apps on Blockstack.
The SEC recently gave Blockstack the go-ahead to conduct a $28 million digital token offering under Regulation A (which enables smaller companies to raise money from the public with less strenuous accounting and disclosure standards than a traditional IPO).
This is a major change from the days the SEC was saying that all ICOs are scams. Under Regulation A the issuer seeking to raise capital files its disclosure document with the SEC. Sales cannot occur until after the SEC staff reviews the issuer’s disclosure document and the issuer satisfies all the SEC staff’s comments. The process is similar to the IPO process.
This first SEC reviewed offering is important, because:
- It provides a template for other digital asset issuers to follow.
- Non-accredited investors can invest.
- Issuers can raise up to $50 million in any 12-month period.
- The offering is exempt from state securities laws registration requirements, which is big deal, because most state regulators don’t understand digital assets yet.
- Investors who purchase in the offering are permitted to immediately resell. This liquidity feature adds immense value to any security.
This legalized pathway should help US blockchain software developers catch up to their international competitors, who have been able to raise capital without significant regulation. The history is that US securities markets attract investors, because investors like the disclosure rules. Therefore, jumping from being shut out of US trading markets to being treated like any other type of security is a major step forward for digital assets.
TurnKey Jet
The SEC’s staff issued its first no-action letter in which the staff agreed that a token to be issued by TurnKey Jet, Inc. is not a security.
TurnKey Jet, Inc., a U.S.-based air carrier and air taxi service will now be able to sell its tokens to the public without complying with U.S. securities laws under very specific conditions. Perhaps more importantly, people who buy the tokens can spend or resell the tokens without complying with “restricted stock” resale rules.
Resale Markets
Resale Markets are the key to Digital Assets, because blockchain technology is a powerful tool fpr transferring a tracking the title to securities and almost any type of asset. Markets involve a host of logistical and regulatory issues. The SEC’s Division of Trading and Markets and the Financial Industry Regulatory Authority (FINRA) recently issued a statement that explains how broker-dealer regulations apply to the custody of digital assets.
We already have a growing set of rules about how issuers can sell Digital Assets. The sooner we have a clear understanding of how Digital Asset resale markets will be regulated the sooner investors is private companies can enjoy the benefits of having greater liquidity that does not depend on the company being sold or doing an IPO.
The developing pattern with digital assets is to that the technology continues grow more useful at a steady rate despite market fluctuations in Bitcoin.
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| Jim Verdonik | Benji Jones |
© 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.
