CoinSchedule reported that in 2017 234 ICOs and token issuances raised $3.7 billion, a significant increase from the ICOs in 2016 that raised less than $100 million.
The SEC (and, we believe, the IRS and CFPB) is focused on this space. Last week the SEC warned of the risks of investing in unregulated digital currencies as there is “less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”
Notwithstanding governmental warnings, anything related to digital currencies seems to capture investor fervor, as Bitcoin continues its dizzying ascent. Last week Longfin started trading on the Nasdaq at $5. On Friday it announced its acquisition of Ziddu.com, a company that uses blockchain technology to finance lenders with its coins and other cryptocurrencies. The craze sent its stock soaring to $24 a share -and on Monday it hit a high of $143.
This past month the SEC halted two ICOs. The first was PlexCorps, which promised investors in its $15 million ICO “a 1,354 percent profit in less than 29 days.” The second was Munchee, which had to withdraw its $15 million ICO because according to the SEC’s Cease and Desist Order, the white paper “emphasized that the company would run its business in ways that would cause MUN tokens to rise in value”, a concept that could suggest the coins are securities (which must be registered with the SEC, or comply with an appropriate exemption from registration).
The SEC’s focus seems to be on whether the token is a true utility token or a security. The SEC stated that the token would be considered a security if it is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” That said, no ICOs have registered with the SEC to date. This market is truly in its infancy and investors have many questions – with few clear answers. Which ICOs should have been registered with the SEC? Is there a taxable event if the ICO is a true utility token? How long will this volatility last?
We have an investor that is actively investing up to $50 million per transaction in crypto-related businesses, cryptoanalysis, hot wallet, cold wallet and blockchain companies. We recently closed such a transaction, and are very focused in this space. We are discussing transactions with numerous companies, and have well-developed thoughts on the appropriate structure required to meet the needs of companies, investors, contributors, and regulators.
Castle Placement is an investment bank founded in 2009 that raises raise equity and debt capital for companies in a variety of industries from our institutional investor network (>27,000 investors – PE/VC firms, hedge funds, family offices, asset managers, lenders, etc.). Robust, data-driven technology platform. Castle Placement recently launched CPGO V 3.0, an interactive platform for companies to access capital and investors to find innovative companies. Member FINRA/SIPC.