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Regulation

Not So Safe After All? SAFT May Increase Risk of Token Sale, New Report Argues

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The SAFT protocol has been heralded by some as the newest form of self-regulation in the cryptocurrency market. But according to researchers at the Cardozo Blockchain Project, SAFTs may carry more legal risk than otherwise assumed.

Legal Risks

The Simple Agreement for Future Tokens (SAFT) project aims to streamline investor accreditation and verification, but may actually create more legal burden from the perspective of securities law. In a 15-page report, the Cardozo Blockchain Project argues that SAFTs “could heighten the exuberance manifesting in markets for blockchain-based tokens and make it even more difficult to provide consumers access to potentially impactful new technology.”

That’s not to say that the researchers are necessarily opposed to the project; they just believe that it could have the opposite effect when it comes to consumer protection.

They go on to say that, “the SAFT Approach ultimately fails to deliver a simplified and binary compliant token sale framework as advertised. Tokens underlying a SAFT may be more likely to be deemed securities, thus potentially subjecting token sellers to significant legal or economic risks.”

Against this backdrop, the authors suggest that SAFTs would heighten the probability of token raises being labelled securities. Although this isn’t inherently bad, most ICO issuers don’t want to go down this path. After all, any token deemed a security is subject to federal oversight by the Securities and Exchange Commission (SEC). This could have a devastating impact on a token raise if regulators determine after the fact that it is indeed a security token.

A New Regulatory Approach?

As the debate over security tokens intensifies, the cryptocurrency community is looking for new ways to navigate the regulatory landscape. Token compliance platform iComplyICO recently published a whitepaper where it argues for a “systematized version of the Howey Test” to determine if a security token can be quantified from the perspective of validation and legal review. This protocol includes automated KYC and identity verification on both sides of the transaction.

Despite a lack of regulatory certainty, the blockchain community has attained several legal milestones in just a few years. According to iComplyICO, these include the Coinbase framework, the Howey Test, the SEC ruling on Slock.it and the Canadian Securities Administrators (CSA) ruling on cryptocurrency offerings.

The CSA notice, which was published in August, suggested that many token offerings fall under the definition of securities under Canadian law. As such, these projects must issue a prospectus before launching. The CSA also said these products may also have the characteristics of derivatives, which would subject them to derivatives laws.

This approach is consistent with the one taken by the SEC in the United States and regulators in Singapore.

As the regulatory issues get ironed out, it’s abundantly clear that the ICO market is still running hot. It remains to be seen whether SAFTs are the answer to an increasingly complex web of regulation or whether industry participants will create a new alternative to drive the market forward.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 497 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Regulation

India’s Central Bank Spells Out Its Cryptocurrency Reservations As Panel Readies Regulatory Draft

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Indian Government Blocks GitHub, Vimeo, and Others for Hosting ISIS Content

The Reserve Bank of India (RBI), which cracked down on cryptocurrencies without much discussion, has offered an explanation a month later, as a government panel considers a draft of regulations, according to Quartz.

The concerns include the currencies’ insufficient intrinsic value, investor protection and anonymous transactions, the central bank explained to the Internet and Mobile Association of India (IAMAI), which includes bitcoin exchanges.

IAMAI members have suggested regulations to the RBI and dispute all of the central bank’s concerns.

Some bitcoin exchanges legally challenged the central bank after it instructed banks in April to close cryptocurrency accounts in the first week of July. In May, the country’s supreme court responded to that challenge by instructing the exchanges to address the RBI directly. The exchanges then submitted their suggestions.

This month, the court chose not to stay the April order, but instructed the RBI to respond to the exchanges’ suggestions.

An IAMAI member indicated the central bank, in its responses to the suggestions, said the RBI saw a need to protect banks and investors from frauds and noted there have been several scams.

The exchanges claim that an indiscriminate ban is not the right way o fight scams.

Praveen Kumar, CEO and chairman of Belfrics, an exchange based in Malaysia and active in India, said limiting cryptocurrency bank transactions and enabling more cash transactions leaves more people vulnerable to duplicity. Rather than a bank, the RBI should establish guidelines for exchanges to follow to prevent frauds.

In addition, frauds occur wherever money is involved, including with banks, noted a CEO for a cryptocurrency exchange in New Delhi who did not want to be identified for publication.

Regarding the central bank’s concern about anonymous transactions, the exchanges said they follow know-your-customer rules that can prevent money laundering. In addition, most transactions occur by means of bank account transfers that serve to monitor the transactions.

Regarding the concern about cryptocurrencies’ lack of intrinsic value, the CEO of another exchange who requested anonymity said this claim is not completely true.

To operate certain computer programs, a user can pay with Ether. And, as more institutions and individuals begin to use cryptocurrencies, there will be more use cases to improve intrinsic value.

One cryptocurrency exchange CEO complained that the central bank raised similar concerns earlier but has refused to consider the recommendations.

A finance ministry panel has been established to explore cryptocurrency regulations. An official who requested anonymity said the panel is not thinking of banning cryptocurrencies, but wants to regulate them so regulators can be able to trace transactions. The official said permitting cryptocurrencies to exist as commodities is being considered.

The official compared cryptocurrencies to traditional trading markets. In traditional stock markets, traders trade in different asset classes, which is not illegal.

Cryptocurrency trading is no different, the official said.

A mechanism that would ensure the funds are not used illegally is needed, the official said, and the most important thing is the ability to track its source.

The panel expects to publish a draft of regulations this month, the secretary of the economic affairs department and the head of the panel announced last month.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 8 rated postsLester Coleman is a veteran business journalist based in the United States. He has covered the payments industry for several years and is available for writing assignments.




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Bitcoin

Crypto Regulation: A Tectonic Shift Is Occurring

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What caused the crypto crash that began last December?  There are some observers silly enough to believe it was all the fault of the CBOE by starting the first Bitcoin futures contracts.  Others believe it was just the bursting of a bubble that was long overdue.

Most likely, the ban on crypto exchanges by the Chinese government and the fear of a total ban on ownership played a very big role in starting the selling wave.  That wave has continued practically to this day. But there is evidence that things are changing.

Since the moves by China, virtually every publication worth its weight in Satoshi has been fueling fears of suffocating governmental regulation.  We’re taking nothing away from these folks because regulation is a big factor for investors.

Barron’s: Regulate Out of Existence

After reading last weeks edition of Barron’s I concluded we have reached the worst in the mania over regulation.  Three of the world’s most “respected” economists, according to Barron’s, Joseph Stiglitz, Nouriel Roubini and Kenneth Rogoff, put the kibosh on crypto on the sole basis that it will be “regulated into oblivion”.  This is just the sort of editorial approach that Barron’s has long been known for.

Of course, there was the volatility versus storehouse of value argument and the declaration that nobody uses Bitcoin as a medium of exchange so it can never be worth anything. The shortcoming of so many economists is their insistence on being chained to history.  

It Is All About Money

After a period of largely negative regulatory developments during the past seven months, signs are emerging that things are changing as governments get more familiar with the benefits of nurturing blockchain technology and crypto. In the end, it is all about governments finally figuring ways to make money from crypto. Once that occurs, they realize, we are all in the same boat.

The Regulatory Paradox

This brings things to what some observers refer to the government regulation paradox. In other words, investors need government to deter price manipulation and other scams. But the unregulated autonomous nature is a big reason that investors bought into crypto in the first place.  So far the trick has been to find a middle ground.

If you take a long look at the issue there is a new trend emerging.  One by one governments are beginning to appreciate the importance of blockchain technology and the role of cryptocurrencies.  The initial adversarial role is being replaced with a more cooperative attitude. Crypto values aren’t going to increase exponentially overnight as a result. Nevertheless, having cooperative regulators is critical to mass acceptance.  Here are a few encouraging signs.

SEC declares Bitcoin and Ether Non Securities

It has been some time now that the US Securities and Exchange Commission ruled that neither Bitcoin or Ether were securities.  The idea is that, so long as there is no conveyance of ownership, everybody is safe. This includes most ICOs as well even though a formal ruling has yet to be given.  This clears up a giant cloud that investors have pretty much ignored.

Changing Government Attitudes in Switzerland

As the U.S. and other countries attempt to exert greater AML and KYC rules, projects are leaving in favor of places like Singapore, Malta and Gibraltar where a connection to the international banking system is available. Information coming from Switzerland predicts that by year end, Swiss banks will be open to dealing with crypto.  As the traditional home of banking secrecy, Switzerland is the ideal place for crypto to make inroads. For the Swiss economy, it is all about finance. Last year, ICO projects brought in almost $1.5 billion that Swiss bankers were losing out on. This could prove to be a landmark decision.

Upstaging China

On any given day, Asia can account for a big share of global crypto trading.  Seven months ago the Chinese government actions threatened the health of the market.  This is understandingly leading governments elsewhere to open their doors.

Improving Asian Trading

Asian regulators are standing by to take advantage of any serious restrictions in China. In Thailand, the securities industry association is working with regulators to establish a joint cryptocurrency exchange and is working with the Thai SEC to get an operating license.  And this month the SEC approved a new two-tier vetting procedure to create accredited ICOs.

All this was made possible because the Thai government wasted no time in declaring crypto as digital assets and skipped the endless debate.  Sometimes a government dictatorship has its advantages.

And finally, signs of improvement in Japanese regulations are being reported that could lead to creating a market for crypto ETFs.

Wrapping Up

It is entirely possible that government regulation could be one of the most boring topics in the history of mankind. But we can all agree that it has hurt every long term crypto investor. We can also agree that there has been a lot of “piling on” by the media this entire year. So I decided to take on a thankless task in the interest of providing some balance to opinions of professors Stiglitz, Roubini and Rogoff. Thanks for keeping me company.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 87 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Regulation

India Unlikely to Ban Cryptocurrency, Government Officials Say

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India’s cryptocurrency saga has taken another turn after government officials indicated that a blanket ban on digital assets is not in the cards. The remarks came mere days after the Supreme Court upheld a banking ban on digital currencies, effectively prohibiting fiat-to-crypto transactions on domestic exchanges.

Blanket Ban on Cryptocurrencies Unlikely

A cryptocurrency panel set up by India’s finance ministry has concluded that digital assets are unlikely to face a comprehensive ban. Instead, crypto assets will most likely be regulated as commodities, according to a senior government officials with ties to the panel.

In an interview with Quartz, the insider said:

“I don’t think anyone is really thinking of banning it [cryptocurrencies] altogether. The issue here is about regulating the trade and we need to know where the money is coming from. Allowing it as a commodity may let us better regulate trade and so that is being considered.”

Hacked previously reported that the government committee was against banning cryptocurrencies, though it wasn’t clear what direction new regulations would take. The decision to regulate cryptocurrencies was later confirmed by Department of Economic Affairs secretary Subash Chandra Garg, who indicated that a new draft bill would be presented to government officials sometime this month.

“We are fairly close to developing a template that we think is in the best interests of the country,” Garg told India’s largest financial media outlet in reference to new cryptocurrency regulations.

According to Quartz, the main task of the cryptocurrency committee is to ensure that digital assets do not facilitate money laundering and other forms of illicit financing.

“Trade is not a criminal offence. Most of us trade in various asset classes in the stock market. So how is this [cryptocurrency trading] any different? What has to be in place is a mechanism to be sure that the money used is not illegal money, and to track its source is the most important thing,” the official said.

RBI Ban in Effect

As of last week, Indian lenders have been barred from servicing cryptocurrency exchanges and their users as part of an industry-wide crackdown on digital assets. The measures were first announced in early April by the Reserve Bank of India (RBI), which gave state-regulated financial institutions three months to comply with the edict.

The matter made it all the way to the Supreme Court after several firms challenged the ban on grounds that it was unconstitutional. However, the Supreme Court refused to grant interim relief to those affected by the new policy.

It is not entirely clear why the RBI decided to bar financial institutions from dealing with crypto-related businesses. What’s more, central bankers were unable to justify their ruling according to an information request submitted by a New Delhi lawyer shortly after the ban was announced.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 497 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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