From where I sit, it appears that the US government has intentionally tanked the Ether market. The US SEC is launching an all out war on ICOs, and many ICOs were issued as contracts with Ethereum. Thus, this new war has tanked the Ether token.
On October 6, 2017, I published What SEC Regulation Means to ICOs in the United States. I argued that the SEC was going to push most ICOs out of the United States. That only the very largest ICOs could afford to issue in the United States and that, such high fees defeat the purpose of issuing an ICO rather than an IPO.
More recently, I noted that cryptocurrency exchanges are moving away from ICOs and going to the $50 million Reg A crowdfunding or mini IPO exception. For more on this, see Crowdfunding a Cryptocurrency Exchange.
Now, in March of 2018, we see that most ICOs have moved to Cayman and Switzerland. The volume of ICOs in the US have dropped by 95% and everyone is scrambling to set up offshore. Most of these projects will block US investors.
The only US investors who have a shot at international ICOs are those in offshore structures. Some, but not all, of the international ICOs, will allow you to invest through an offshore IRA LLC or offshore corporation.
In March, I thought that the SEC would just enforce their new rules going forward. The government had issued a warning to DAO and stopped all future ICOs that did not comply with IPO rules. They effectively closed the US market to ICOs and ensured the IPO industry would carry on as a major profit center for political donors.
Oh, was I wrong…
Apparently, someone realized that they could bring in millions in fines and penalties, and deal a blow to the crypto market at the same time. Thus, the government is going back to look at all past ICOs and see if they can bring civil and criminal charges.
Think about this for a minute. There were no laws governing ICOs. So, the government is arguing that no law or vague laws is no excuse. Sellers should have held themselves to the same standard as IPO seller. Those who didn’t should go to jail. Realy?
The first shot in the battle was the US SEC issuing subpoenas and search warrants to “dozens” of firms that have sold tokens prior to guidance being issued. All of these companies will spend hundreds of thousands of dollars defending themselves from the onslaught and most will be shuttered.
Very few small companies can afford to battle the SEC. They will pay whatever fine and close… which means their tokens will be come worthless.
The SEC’s decision to aggressively police prior cryptocurrency offerings is particularly significant for the Ethereum community because many new cryptocurrency offerings are built on top of the Ethereum platform. People creating a new token on the Ethereum blockchain need to buy Ether, the currency used to pay for Ethereum transactions. Thus, government action is causing the Ether market to crash.
Another way to say this is that the government is intentionally chilling the crypto and ICO industry. While it’s being done under the guise of protecting consumers, it’s putting the clamps on an industry that could have been a major disruptive force to traditional money sources.
In addition to aggressive regulation, forcing ICOs to qualify under SEC rules will chill the industry. For example, ICOs in 2018 will likely be structured as Reg D offerings to accredited investors.
As pointed out in this Coinbase article, the SEC rules put US investors at a major disadvantage to international investors. US Reg D accredited investors (basically, all US investors going forward), must hold their investments for at least 1 year. International investors have no such requirement.
So, you sell your tokens in the United States and offshore. everyone who buys offshore is free to trade as market conditions allow. Those in the United States are locked in for a year. This is a major disadvantage to US investors in a highly volatile market.
And all US exchanges should see the writing on the wall. I expect most US exchanges to be closed. Any exchange that has securities tokens trading on them is in for a battle and major fines from a myriad of government regulators.
On March 7, 2018, the SEC issued a statement that all crypto exchanges should register with the US government. In a statement, the SEC said these “potentially unlawful” platforms may be giving investors an unearned sense of safety by labeling themselves as “exchanges.” The regulator said these platforms need to register with the SEC as a regulated national securities exchange or an alternate trading system, or ATS.
You can expect such a crackdown will greatly reduce the number of exchanges in the United States. Few can afford the millions of dollars it will cost in legal fees to comply with these newly invented requirements.
And such a contraction in the industry might just be what the US government wants. With fewer exchanges, it will be easier to regulate the players, gain access to client records, and ensure tax tax compliance. At the end of the day, most of these rules are all about maximizing revenues.
For more on the US IRS in this fight, see: The IRS smells blood in the water over Bitcoin!
For information on moving your IRA offshore to invest in ICOs and crypto, see: Take your IRA offshore and invest in cryptocurrency.