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North America: Crypto and Blockchain News Roundup, 11th to 17th May 2018

North America

Welcome to our weekly roundup of all important blockchain and cryptocurrency news from around the world. Follow the latest developments in the cryptocurrency space continent by continent, country by country.

USA

Crypto markets likely to surge with Wall Street interest: Crypto markets may be up for a boost amid interest from Wall Street according to BKCM digital asset former founder and CNBC contributor Brian Kelly. Kelly maintains the opinion that the New York Stock Exchange (NYSE) and Goldman Sachs’s entry into the crypto space will increase popularity of crypto markets.

But, it was also reported that NYSE won’t be launching a futures market but instead a regular cryptocurrency trading desk or app where customers can trade in cryptocurrencies like stocks.

According to NY Times:

“The parent company of the New York Stock Exchange has been working on an online trading platform that would allow large investors to buy and hold Bitcoin, according to emails and documents viewed by The New York Times.”

Elon Musk challenges Warren Buffet’s take on crypto: Warren Buffet’s anti-cryptocurrency views are famous around the globe and constantly draw flak from pro-blockchain figures. Recently, Elon Musk was involved in a social media exchange with his rival that led to a light-hearted jab.

Elon Musk said in response to Buffet’s rigid ideas on cryptocurrency in a tweet: “ok ok, just for the sake of argument, what do you wish for Candy? Cryptocandy?”

The reference was a light jab at Buffet’s investment in See’s Candy. Musk hasn’t taken to much of a strong stance on cryptocurrencies but the tweet shows he is ready to defend the currency and the tech.

Mutual fund VP says blockchain to drive companies into next industrial revolution: Mutual fund Federated Investors’ VP and portfolio manager Steve Chivarone has ranked blockchain as one of the top five techs that will usher the world into the next industrial revolution.

Chivarone went beyond that and said blockchain could become an “economic driver” along with robotics, AI and IOT.

He said, “When you think about it from an enterprise perspective, it has the ability to replace reconciliation, which is expensive and requires back-office and time and paperwork with more instantaneous verification […] that will allow cost to be cut and that savings [sic] to be passed along.”

Microsoft and Amazon adapting to blockchain: Two of the biggest companies in the world, Microsoft and Amazon, are now trying multiples approaches to get into the blockchain space as part of their transition into decentralized economy and cashless society.

Microsoft had been one of the pioneers in the business it has already toyed with Bitcoin payments in the Xbox and Windows store but is now looking at its technology for the future rather than just monetary value.

Similarly, Amazon has been under pressure to start accepting cryptocurrency payments. While that is not possible right now, Amazon has announced that it is looking into blockchain-related proposals for its Amazon Web Services (AWS).

The involvement of both these tech giants is seen as a boost by the crypto community.

Californian candidate running on pro-crypto platform: Californian politician Brian Forde is running on a pro-crypto platform for Congress. The candidate is aiming to become the representative of the 45th District seat in Washington and is promising to bridge the gap between the government and the crypto community.

Speaking at an Ethereum summit in Queens he said:

“What I want to do is create transparency for the voice of the citizen, so that if I do make a decision that’s not consistent with what all the votes said, then I’ve got to explain myself.”

New York looking to become blockchain hub: The New York Economic Development Corporation (NYEDC) has announced that it is taking initiatives to make the city a Blockchain hub in the country. With Blockchain Week underway in the city, several plans for the future of cryptocurrencies have been proposed. The development of a Blockchain Center is one of the initiatives and its purpose is to educate and raise awareness of the groundbreaking technology.

New York’s notorious BitLicense requirements are seen as anti-crypto policy and that may well change following this move by the administration.

NYC Blockchain Week underway: The first Blockchain Week is underway. The inaugural edition is taking place in partnership between NYDEC and CoinDesk.

Over 8,000 attendees are likely to participate in the conference and speakers include Twitter CEO Jack Dorsey, Federal Reserve Bank of St Louis President James Bullard and CEO FedEx Corp Fredrick Smith according to co-sponsors Coindesk.

After parties will include a bash hosted by Ripple featuring Snoop Dogg.

Canada

Bank of Canada says blockchain effective for securities settlements: Canada’s central bank and Toronto Stock Exchange has said that blockchain technology is an effective method for automating securities exchange in real time.

British Columbia regulator warns against investing in crypto: British Columbia securities regulator has voiced the same concerns as his Ontario counterpart by coming out against investment in cryptocurrencies because of the risk of financial scams.

The official channel of the commission states that residents should take extreme caution in deciding whether or not to buy cryptocurrencies.

 

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Educational Hoax ICO Site Launched by US Government

The US Securities and Exchange Commission (SEC) has produced a website advertising a scam initial coin offering (ICO), in an effort to educate the populace on how to identify such fraudulent websites.

In a Wednesday press release, SEC Chairman Jay Clayton discussed the intent behind the initiative. While acknowledging the rapid growth in the number of ICOs, he explained a need to help give investors the tools they require to recognize fraudulent sites.

”We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud… I encourage investors to do their diligence and ask questions,”
Clayton detailed.

Howeycoin ‘ICO’

The mock ICO website advertises the fictitious Howeycoin token, reading: ”Howeycoin is the newest and only coin offering that captures the magic of coin trading profits AND the excitement and guaranteed returns of the travel industry. Howeycoins will partner with all segments of the travel industry (air, hotel, car rental, and luxury segments), earning coins you can trade for profit instead of points.”

Information provided on the website looks much like that supplied during a genuine ICO, with statements such as “We anticipate OVER 1% daily returns, with DOUBLE 2% returns on Tier 1 investors in pre-ICO stage secured purchases.”

SEC Chief Council Owen Donley noted the ease at which scammers can utilize convoluted jargon to lure individuals into false investments, but pointed out significant red flags that can indicate fraud.

By clicking on the internal website links, visitors are directed to an SEC site that notifies them of the truthful nature of the website.

The SEC notice explains: ”Our bogus site is a mash-up of a number of different things we’ve seen – any particular fraud may be harder to spot than the red flags here. Here are some of the signs of fraud that are on the Howeycoins site – we hope reviewing these may help you recognize a real fraud in the future!”

Targetting of ICOs

There is certainly an emphasis currently placed on targetting ICOs and cryptocurrency related scams, when in fact around less than 1% of Bitcoin-related transactions have been linked to illicit activities. Although, it is true that several high-profile ICOs have been shut down due to suspected, or convicted fraudulent activity.

While it is certainly necessary to regulate ICOs to ensure they are providing the services and tokens that they are advertising, the current enforcement of numerous subpoenas by the SEC does indicate an arguably overzealous approach towards cryptocurrency start-ups when compared to how mainstream financial scams are currently handled.

 

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Clearer Ground Rules for Thai Crypto Space

Thailand has clarified its position and some new rules regarding the holding and purchasing of cryptocurrencies in a royal decree published on 13 May on a royal gazette, according to the Bangkok Post.

The Royal Thai Government Gazette, frequently abbreviated Government Gazette (GG) or Royal Gazette, is the public journal and newspaper of record of Thailand. Laws passed by the government generally come into force after publication in the GG.

Thailand’s Securities and Exchange Commission (SEC) has announced that offerings of digital currency will not be allowed until the new regulations are finalized in June, according to Reuters. The decree, which took effect on Monday, requires sellers and operators to register assets to the SEC within 90 days. Sellers of digital tokens unauthorized by the SEC will be fined no more than twice the value of the digital transaction or at least 500,000 Thai baht (THB or approximately USD 15,500) and could also face a jail term of up to two years.

The Bangkok Times has reported that finance minister Apisak Tantivorawong said that the law was necessary to regulate cryptocurrencies and digital tokens to prevent money laundering, tax avoidance, and crime.

In early April 2018, Thailand’s ministry of finance released plans to tax cryptocurrency trading and investments according. The proposed 15% capital gains tax is considered by digital asset operators in Thailand to be a stifling figure for the industry. It puts financial pressure on startups seeking to break into the blockchain and cryptocurrency industry, which could hinder overall innovation in the country. There is also a 7% VAT charged on all cryptocurrency trades in the country.

Minister Tantivorawong made it clear that the new rules were “not meant to prohibit cryptocurrencies, initial coin offerings (ICOs) and other digital asset-related transactions, but to protect investors”.

“Good news for Thai crypto enthusiasts was provided by The Stock Exchange of Thailand (SET) earlier this month at the announcement of a blockchain-powered crowdfunding platform to facilitate startups and small enterprises in the Southeast Asian country,” CCN reports.

The platform, known as LiVE, plans to provide a “complete startup ecosystem” which will also provide education for new businesses and easier access to institutional investors. So far, only eight businesses have been targetted by SET, but there are plans to ask more than 50 companies to join the program.

 

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US Regulators Support Blockchain Development as Snoop Dog Plays Them Out

As the Coindesk Consensus 2018 in New York drew to a close, it was time for US regulators to have their say, all agreeing that they did not want to interfere unduly with blockchain or the tokens built on the nascent technology, reports Coindesk.

As US regulators continue to look into cryptocurrencies and ICOs, one event at the conference saw three of them on stage together, joined by Kiran Raj, chief strategy officer at crypto exchange Bittrex, and attorney Steve Bunnel as panel moderator. Commodity Futures Trading Commission (CFTC) enforcement director James McDonald, Securities and Exchange Commission (SEC) Enforcement Division Cyber Unit chief Robert Cohen and associate deputy attorney general Sujit Raman answered questions regarding industry regulation.

While the members of the panel made it quite clear they weren’t there to represent their respective agencies, they all agreed that the wanted to see the crypto space unhindered by over-regulation.

They agreed that one of the major concerns continued to be fraud and misuse of the cryptocurrency and blockchain space by criminal activity. Cohen and Mcdonald claimed that their particular agencies had “open-door policies” for ICOs:

“The SEC has been open about meeting with people from the industry, to come in and meet with the staff, to talk about the ideas you have, the new developments, and have a dialogue about the new technology. The commission encourages ways to raise capital, we don’t regulate the technology – we regulate the financial industry and the markets.”
On regulation, McDonald commented:

“Our mission is to foster financially sound markets, and we understand as a regulator that requires a certain amount of [flexibility] in our approach. We’re doing it in a way that doesn’t hinder innovation and doesn’t interfere with other regulatory priorities.”

Associate deputy Attorney General Sujit Raman asserted that Americans need to be protected by the Department of Justice, commenting that ” large sums of money flowing through the market without touching financial institutions… we have to investigate from a national security perspective.”

Asked about his concerns, Bittrex’s Raj suggested that more certainty was needed regarding regulatory processes to combat fraud, agreeing that it was not welcome in the industry, asking, “The problem is how do we take guidance and apply it to what you’re doing when it’s so far away from what the fraud people are doing?”

In contrast to the suited regulators earlier stage performance,  the conference came to a close with an after bash party as promised with a performance by Snoop Dog, who arrived at the half-filled event space in Manhattan’s Meatpacking District, clad in Patagonia fleeces, button-up shirts and Team Ripple tees. He performed to a group of cryptocurrency believers downing champagne and blood orange margaritas.

This wasn’t Snoop dog’s first encounter with cryptocurrency, once tweeting, “My next record is available in Bitcoin n delivered in a drone”.

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Centra Tech Founders Indicted by Grand Jury

The Attorney General of the Southern District of New York has announced that the founders of the cryptocurrency-based company Centra Tech Raymond Trapani, Sohrab Sharma, and Robert Farkas, have been indicted by a grand jury. This essentially means that charges against the founders have been formalized and the case will proceed to trial.

Centra Tech was developing a credit card which streamlined the process of spending cryptocurrency. Users could deposit their coins in an account linked to the credit card, and then when they want to make a purchase it works like a normal credit card by converting the cryptocurrency to USD.

Famous heavyweight boxer Floyd Mayweather had endorsed Centra Tech and put some posts on Instagram and Twitter showing how he was going around town buying things with the Centra Tech card, but these posts have since been deleted.

In order to raise money, Centra Tech released their own cryptocurrency in an initial coin offering (ICO) that raised over USD 30 million. ICOs are quite typical in the cryptocurrency world and usually occur without anyone being arrested, but where Centra Tech went wrong is they claimed to have partnerships with Visa, MasterCard, and Bancorp. This claim resulted in substantial investment, especially since Centra Tech used celebrity endorsements and glossy marketing materials to make themselves seem legitimate.

This attracted the attention of the Securities and Exchange Commission (SEC), which discovered that Centra Tech had no partnership with Visa, MasterCard, or Bancorp. The SEC halted the ICO and charged the founders with orchestrating a fraudulent ICO. They also charged Centra Tech with selling unregistered securities.

It is up for debate whether a cryptocurrency ICO counts as selling securities, but in this case, the SEC has decided the Centra Tech token does. The definition of a security is a financial instrument that holds monetary value, which is quite broad and could theoretically mean that any given cryptocurrency is a security. It is illegal in the United States to sell securities without registering with the SEC.

The Justice Department issued its own charges against the founders for conspiring to commit, and the commission of securities and wire fraud in connection with a scheme to induce victims to invest more than USD 25 million in investments through material misrepresentations and omissions.

The founders of Centra Tech were arrested prior to the Grand Jury Indictment and are sitting in jail until the trial is complete. Approximately USD 60 million of the founders’ money has been seized by authorities.

 

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Why SEC Should Take a Close Look at an ICO Amnesty Plan

Daniel S Alter, former general counsel for the New York State Department of Financial Services (DFS) and writer for Coindesk has suggested that the SEC should consider an amnesty for illegal ICOs.

In his article, he points out that 2017 saw a monumental rise in the number of coin offerings (ICOs). At one point, up to 50 companies a month were raising funds, most of these unregistered.

This changed later in 2017 after the DAO report based on the Howey Test earlier that year in July, resulted in certain tokens being classified as “investment contracts”, thereby becoming liable for US Securities and Exchange Commission’s (SEC) registration.

It took precedent from the famous court case of the WJ Howey Co-owned Florida citrus groves, the fruits from which would typically be considered a commodity when sold on an exchange. However, the Howey Co also leased about half of its groves in order to finance future grove developments. Howey’s own fruit groves, therefore, were found to be tied to its leased groves, which qualified as an “investment contract” instrument – or a security.

According to Alter, 2018 saw a wave of “SEC subpoenas and enforcement actions targeting similar token offerings – many of which smacked of fraud”. The result is that many ICO tokens have seen a fall in value due to reduced liquidity, market instability for existing tokens, and US companies registering overseas where token sales are unrestricted.

Alter suggests that a model amnesty “clean up” plan should be forged between participating ICOs and the SEC in order to integrate the new asset class into the current structure and introduce a mechanism for protecting “legally flawed investments”. Reports suggest that this process may have begun already, with firms and their lobbyists meeting with the SEC to try and effect a regulatory exemption for unregistered security tokens.

Currently, there are five agencies involved in discussing and setting cryptocurrency regulation in the US, including the US Securities and Exchange Commission (SEC), FinCEN, the Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ), and the Internal Revenue Service (IRS).

This past February, the Commission’s enforcement division announced the Share Class Selection Disclosure Initiative (SCSD Initiative), self-described as a self-reporting initiative that seeks to protect advisory clients from undisclosed conflicts of interest and return money to investors. Those reporting illegal activity under the initiative would be free from penalty themselves.

Alter feels that a similar approach could work with the case of unregistered security tokens by offering an amnesty. He suggests a method of achieving this would be for issuers of unregistered tokens to make a formal presentation to the SEC to replace the “old” tokens for “new” tokens. This could be formulated under section 12 of the Securities Act of 1933 (establishing a cause of action for rescission or damages in connection with the sale of unregistered securities).

“As an incentive to exchange old tokens for new ones, issuers would probably need to offer some additional consideration – possibly paid in new tokens rather than cash in order to preserve the company’s operating capital,” says Alter.

Ethereum is now under regulatory scrutiny by the SEC, which is considering whether it should be classified as a commodity or a security, according to the New York Times. The SEC is likely to use the Howey Test to establish if Ethereum trading qualifies as an investment contract, thus becoming a security.

 

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Brian Kelly Still Bullish About Bitcoin Climbing

Comments made by BKCM founder Brian Kelly last week, when Bitcoin officially crossed the USD 10,000 line before its subsequent drop, suggested that there were three clear factors that would determine the coin’s next big rally, according to CCN.

The Goldman Sachs factor

Kelly sees the next support levels after USD 10,000 as USD 12,000 and USD 14,000. One factor he cites as being significant in securing this charge, was last week’s announcement by Goldman Sachs confirming the go-ahead to invest customers funds in Bitcoin through a new cryptocurrency trading desk; a decision by the bank largely provoked by customer demand.

Jon Matonis, Bitcoin Foundation founder and Visa executive, is animated with such announcements by major financial institutions such as Goldman Sachs, commenting:

“I think it’s fabulous that they’re getting into it because it brings in new liquidity. They’re going to develop futures markets, options markets — I even think you’re going to start to see interest-rate markets around Bitcoin.”

Matonis sees the move as one which will allow the cryptocurrency market to mature through more public trading of bitcoin. The New York Times reported yesterday that Intercontinental Exchange, owner of the New York Stock Exchange (NYSE), is also considering allowing customers to buy and hold Bitcoin, which would become the second Wall Street financial institution to consider such a step within weeks.

Defining Bitcoin

Another factor, according to Kelly, is the clarity now being offered by the SEC regarding the description of digital currencies. SEC chairman’s Jay Clayton’s recent suggestion that if Bitcoin is a medium of exchange it, can’t be deemed as a security due to its use as a currency which he sees as a positive mover for Bitcoin. However, Aaron Wright, director of blockchain project Cardozo, recently suggested that there is “superficial appeal” to treating Bitcoin and related tokens as securities, as many of them were still seen as “speculative assets”.

New York Blockchain Week

Another push to Bitcoin’s potential pricing fortunes, according to Kelly, is this month’s Blockchain Week being held in New York. Partnering the New York City Economic Development Corporation in the project, Kevin Worth, CEO of Coindesk, comments about the week’s headline event, ‘Consensus’.

“Consensus is more than just a conference. It’s the largest and must-attend gathering of everyone involved in our rapidly growing ecosystem. We’re proud to partner with companies that continue to innovate and actively work toward taking their projects live.”

 

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Global Conference Fireworks Over Crypto

A recent panel discussion at the Milken Institute Global Conference in Beverly Hills became heated when panelists aired their conflicting views on the future of cryptocurrency.

Every seat in the conference auditorium was filled for the discussion which included United States Commodity Futures Trading Commission (CFTC) chairman Christopher Giancarlo, economist Nouriel Roubini, and Commissioner at the United States Securities and Exchange Commission (SEC) Michael Piwowar.

SEC’s commissioner Piwowar, issued an early warning, making reference to the current argument surrounding ICOs, which has occupied much debate recently, suggesting that if an ICO token is a security it falls into one of three categories:

“The first is the registered public offerings; this is the normal IPO, public offer. We’ve not had anybody register a public offering for an ICO. The next bucket is exempt offerings, so if you have an ICO, you have to fit into one of those types of exempted. And the third bucket is illegal […] if you are not falling into the first two buckets, we’ve said we’re coming after you.”

Piwowar added, “Bitcoin itself is not a security, but these customized tokens for these initial coin offering – most of them are.”

Christopher Giancarlo was upbeat,  suggesting that there should be more respect for the generation’s “new instrument”, referring to cryptocurrencies, and said that rather than derision, markets needed policy initiatives that were “thoughtful and forward-looking”. He continued:

“There is something going on here that is generational… Just as the baby boomer generation lost faith in the leaders that came before them and tried to seek a cultural change in those days through sex, drugs and rock and roll, I think there is a generation that also has lost faith in us that led them through the financial crisis and they see technology as a way of disintermediating institutions for which they don’t have a great deal of respect.”

He went on to explain the CFTC’s problems of applying outmoded regulations to completely new technology.

Nouriel Roubini, tagged as ‘Dr Doom’, an economist known for predicting the 2008 financial crisis, caused friction when describing blockchain as “a glorified Excel spreadsheet” and described investors entering the Bitcoin market “bubble” in 2017 as “suckers.”

His description of decentralization as bullsh*t provoked blockchain entrepreneur Alex Macshinsky to respond, “Everything you just said is irrelevant.”

Ex-CIA cryptographer Bill Barhydt, clearly bemused by Roubini’s comments, retorted with “I don’t even know where to begin”.

 

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Telegram Cancels ICO Amid Tightening of Regulations

From what was rumored to be the biggest initial coin offering (ICO) in history, Telegram has now shut down its much-publicized ICO, as reported by the Independent.

While some have claimed that Telegram already successfully raised its monetary target, it seems more likely that the cancellation was due to the tightening of ICO regulations happening across the world and particularly in the US.

ICOs have collectively raised USD 12 billion in funds since 2014, but perceived connections with scams and fraudulent activities have led the Securities and Exchange Commission (SEC) to scrutinize the legality of these fundraising efforts.

SEC chairman Jay Clayton recently testified before the US Congress, saying, “Many ICOs are being conducted illegally. Their promoters and other participants are not following our security laws.”

Satis Group created a resource to identify ICOs and cryptocurrencies as scams, but Telegram’s fundraising for the Telegram Open Network (TON) coin does not appear to fall into this category. Officials have argued, however, that this could not be accurately identified until the final launch that was scheduled for later this year.

Telegram’s ICO

In the white paper detailing the ICO held by Telegram, the company detailed its objective to create a cryptocurrency that could overcome the limitations of Bitcoin and the other leading cryptocurrencies. The digital currency was advertized to offer lower transaction fees at quicker transaction times.

The white paper reads: “To this day, no consensus-backed currency has been able to appeal to the mass market and reach mainstream adoption. Telegram will use its expertise in encrypted distributed data storage to create TON, a fast and inherently scalable multi-blockchain architecture.”

Frustrated investors

Investors and industry pundits have reacted angrily to the cancellation, which reportedly raised USD 1.7 billion. While this gives Telegram enough finances to launch TON, they have put the cryptocurrency on hold.

ShapeShift CEO Erik Voorhees is one such frustrated industry specialist who vented on Twitter.

The SEC has created an environment where only the rich (aka “accredited investors”) are able to get access to financial deals. The plebeians must stick to the lottery. Telegram Cancels public sale of tokens due to SEC: https://t.co/jHH4LgMvO5

— Erik Voorhees (@ErikVoorhees) May 2, 2018

Telegram has a long way to go to rebuilding a relationship with the investors. With its ICO promoted as bringing the world the first mainstream cryptocurrency, this is disappointing news for some in the cryptocurrency market.

 

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Legal Pathway for ICOs Sought by US Regulators

According to Robert Jackson, a commissioner at the Securities and Exchange Commission (SEC), a solution is needed to facilitate the launching of ICOs within current US securities law.

Speaking to CNBC’s Squawk Box on Monday, Jackson voiced current SEC concerns regarding the need to address ICO fraud, but suggested a legal method for raising cryptocurrency funds might be possible:

“Investors are having a hard time telling the difference between investments and fraud. Down the road, I think we will be thinking about ways to make those investments work consistent with our securities laws.”

There have been other positive voices coming from the SEC in the last few weeks. Recently, Republican Minnesota Representative Tom Emmer at an SEC Division of Corporation Finance meeting suggested that much of the furor over crypto fraud was exaggerated. He argued that regulators assumptions that decentralized networks were only used for fraud and crime, bore parallels to early explorers’ assumptions about Earth.

The US has no desire to follow in China’s footsteps by banning ICOs, but among regulatory bodies such as the SEC, there are clearly ongoing concerns over the protection of consumers, given events of the past few years.

“If you want to know what our markets would look like with no securities regulation, what it would look like if the SEC didn’t do its job? The answer is the ICO market,” Jackson said.

Although the SEC considers most ICOs as securities, and despite several warnings being issued to crypto startups for non-compliance with current rules, there is more than a suggestion of pragmatism in dealing with the issue.

Last month, SEC division head William Hinman suggested that the SEC was “meeting with participants that have these ideas of a token that shouldn’t be regulated as a security” and said that he was working with them on how they should be structured. He pointed out that the US wanted to be pragmatic in support of new technology.

In March, the SEC announced that crypto exchanges which provide ICO token trading solutions had to register with the regulator.

image source https://pixabay.com/en/startup-wall-painter-house-painter-2850272/  geralt

 

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