Briefly describe "cryptocurrency" and an "initial coin offering" (ICO). To what extent is the SEC involved with an ICO?
What will be an ideal response?
"Cryptocurrency" is a digital currency that works as a medium of exchange and serves as virtual cash. Bitcoin and Ether are examples of cryptocurrencies. Cryptocurrencies can be used to purchase goods, services, investments, or digital assets from sellers willing to accept such currency.
An "initial coin offering" (ICO) is a method used by some start-up companies to raise capital. With an ICO, the start-up accepts payment from investors in Bitcoin or other cryptocurrency, or in money, and then issues its own crypto coins or tokens to the investors. Purchasers of the digital coins are not issued stock in the company and have no equity interest or voting rights. Investors are relying on the increase in the value of the digital coins they have been issued. The issuer has raised the money it needs to develop and expand its business. ICOs are made on the internet using websites, social media, and other electronic media.
The SEC has determined that ICOs constitute the issuance of investment contracts that are securities, and, as such, are subject to federal securities laws. Therefore, an ICO must either be registered with the SEC or qualify for an exemption from registration. Most ICOs are issued pursuant to the SEC's crowdfunding rules. Online exchanges over which cryptocurrencies are traded must register with the SEC.
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