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US Congressman Says ICO Market Needs ‘Light Touch’ Regulation to Provide Certainty

U.S. Representative Warren Davidson (R-Ohio) said the initial coin offering (ICO) market needs “light touch” regulation on CNBC's Squawk Box today, June 21.

When asked about cryptocurrency regulation, Davidson argued that the “big thing” the market needs is a “light touch regulatory framework” which, according to the congressman, would provide more certainty.

Davidson stressed the necessity of defining the status of cryptocurrencies, pointing out the recent announcement of the U.S. Securities and Exchange Commission (SEC) that the top altcoin Ethereum (ETH) will be considered a commodity rather than a security. He added that the government still “[has not] put together” a coherent regulatory framework, claiming that there’s still “arbitrage going on.”

“You don’t really know when somebody does an ICO, whether they are really launching this great distributed ledger product that is going to be a security or if it looks a little different, like [Ethereum] and [Bitcoin] determined to be essentially commodities.”

Davidson stated that a lightweight regulatory framework could provide more clarity to investors without encumbering projects with undue regulations. He said that a clear regulatory framework would save companies from the bureaucratic difficulties of navigating myriad different court decisions at varying levels.

The congressman further explained that the lack of regulatory certainty made the ICO market risky and potentially unsafe, as fraudulent ICO projects could take advantage of investors. He advocated for the proper application of know your customer (KYC) and anti-money laundering provisions to “make sure we protect ourselves.”

When asked why crypto is the “currency of choice” for people engaged in illicit activities, Davidson responded:

“I’m not sure that it would be considered the currency of choice, but it is easy to transmit through time and space, and its distributed, you don’t need a central clearing house… but if you look at how cases like Mt. Gox have been solved, there are ways to trace who is the beneficial owner...”

Davidson said that crypto asset flows are “more trackable than cash,” and “certainly more open than hawala network, and both those things are still legal.”

Yesterday, Nasdaq CEO Adena Friedman claimed that ICOs pose “serious risks” for retail investors and highlighted that the ICO processes have “almost no oversight.” from the SEC in comparison with initial public offerings (IPOs).

On June 19, CBOE Global Markets President Chris Concannon claimed that the ICO market could soon face a two-fold regulatory “reckoning,” should the SEC classify ICOs as unregistered securities.

CBOE Global Markets President: ICO Market to Face a ‘Regulatory Reckoning’

CBOE Global Markets President Chris Concannon has claimed that the initial coin offering (ICO) market could soon face a two-fold regulatory “reckoning,” Business Insider reports June 19.

According to Concannon, the reckoning will come in two waves. First, the U.S. Securities and Exchange Commission (SEC) will classify ICOs as unregistered securities and the holdings of investors would be “rendered valueless.” This would subsequently cause the second wave, as a slew of class-action lawsuits are filed against the companies behind ICO projects:

“The reckoning will come in two waves. First, the SEC will go after ICO market participants. Then, class-action lawsuits against the teams behind ICO projects will surge.”

Concannon said that ICO investors “should lay awake at night” worrying about the uncertainty in the ICO market. Concannon explained that if someone offered an unregistered coin, they would technically have issued an unregistered security, and in the eyes of the law would be considered an “unregistered underwriter.”

"If you sold someone an unregistered security you are liable to them if they decide to take them to court."

Whether the SEC would retroactively prosecute ICO projects remains uncertain. Professor of financial regulation at Cornell University Robert Hockett said the SEC would likely only take action in extenuating circumstances:

"I don't think it is the case that people involved in the business are going to be prosecuted against as if they have been violating the law. But there is a little bit of a room for exception with something particularly egregious."

In 2017, the ICO market broke funding records, raising a fiat equivalent of $4 billion. Using data from from Token Report, Business Insider estimates that ICOs will raise $7 billion in 2018.

Financial regulators have repeatedly urged the public to comply with existing laws, and have taken action against those who have failed to do so. In a large-scale probe into suspicious crypto investment products dubbed “Operation Cryptosweep,” U.S. and Canadian regulators from 40 jurisdictions have opened up to 70 investigations.

Earlier today, founder of McAfee Antivirus Software and crypto enthusiast John McAfee announced that he will stop cooperating with ICOs and promoting ICO projects due to supposed threats from the SEC. McAfee, who revealed his second run for president in early June, claimed that he charges $105,000 per tweet to promote cryptocurrency projects and products.

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