Category Archives: Initial Coin Offerings

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IEOs, ICOs, Whatever the Name, Regulation is the Issue

IEOs, ICOs, Whatever the Name, Regulation is the Issue (1)

With Initial Exchange Offerings (IEOs) gaining in popularity, industry experts have been suggesting that their uncertain regulatory status doesn’t necessarily mark an improvement as a way of generating new capital.

An IEO is conducted via a cryptocurrency exchange. Unlike Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens. ICOs raised nearly USD 30 billion over a period of three years until hitting a wall in 2018/2019 as the SEC cracked down on fraudulent activity and illegal offerings blighting the market.

Many analysts see IEOs as a way of sidestepping strict market regulation, but Peter Van Valkenburgh, director of research at advocacy group Coin Center in Washington, begs to disagree that there is any mileage in this argument. He suggests:

“I don’t expect IEOs to result in better outcomes… From a regulatory and legal standpoint, there’s not going to be much difference here… Calling it now an IEO is not going to change your obligation to the potential issuer of that token if the token fits the test for a security, which I think in many cases it will.”

Crypto advisory firm TokenMarket’s CEO Ransu Salovaara claims that whatever the method of raising capital, tokens still need to work as utility tokens in the long run. Cryptocurrency research firm InWara claimed that only 30% of IEOs launched this year had what it calls a “minimum viable product” at the sale with most offering simply a website and a white paper.

A recent InWara research report into IEOs found that many exchanges don’t screen new products launched on their platforms, often offering subjective evaluation:

“That’s the problem here: there is no standardized vetting process… And as long as exchanges have the freedom to decide where to draw the line, bad actors, and fraud crypto projects will always creep into the limelight.”

 

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South Korea Contemplates Crypto and ICO Tax Laws

South Korea Contemplates Crypto and ICO Tax Laws

A plan to tax cryptocurrencies and initial coin offerings (ICOs) is underway in South Korea, this according to finance minister nominee Hong Nam-ki.

Examination

The Korea Times has reported that the nominee submitted a written answer to the National Assembly on Sunday, 2 December, during his confirmation hearing. According to the article, Hong said that the plan to tax crypto and ICOs would be completed once the taxation infrastructure has been created and furthermore, based on sentiments drawn from international discussions, saying:

“A task force consisting of experts from relevant government agencies including the National Tax Service and the private sector will be formed to examine overseas examples and hammer out the taxation plan.”

Hong rather specifically describes cryptocurrencies as “electronic signs of values issued privately”; he said there are around 2,000 digital tokens being traded on a global level and 160 in South Korea.

He writes, “Cryptocurrencies are a new phenomenon and so there is no internationally agreed regulatory framework… Furthermore, there are such lingering problems as the market overheating and investor protection. Therefore, we need to be careful in building the regulatory framework.”

Precedent

His words are typical of those who seek to establish an accommodating environment for the technology. Previously, the governor of South Korea’s Financial Supervisory Service (FSS) urged members of the global community to seek out an “international discipline system” for cryptocurrencies and ICOs. In his speech, the governor described the need to encourage financial innovation, while aiming to cool the “overheated speculation” of the markets, minimize consumer risks and tackle illegal activities associated with cryptos.

In August, the South Korean Blockchain Enterprise Promotion Association (BEPA) made calls for the government to act faster in its efforts to regulate blockchain and cryptocurrencies. BEPA criticized the government for giving too much focus to the “negative short-term-side effects” and instead stifling the nation’s ability to compete on the world stage.

Tax perks

There had been previous uproar in South Korea over the government’s decision to exclude cryptocurrency trading platforms from a special tax relief programme for “new-growth technologies“.

Hong offered his thoughts on the matter, believing that the exclusion was due to crypto exchanges being criticized for their vulnerabilities to illegal activities, and this move was a reflection of such sentiments.

He adds: “We will do our utmost to nurture blockchain technology as nine out of the ten business types classified as blockchain-related businesses by Statistics Korea excluding the crypto exchanges can be still acknowledged as venture companies.”

In the following discourse, fears over domestic enterprises moving to other countries soon became a reality when cryptocurrency exchange Bithumb was sold off to a Singapore-based consortium. As a result, a South Korean lawmaker proposed a bill that would provide the structure for the development of exchanges, “tax reduction and exemption” and guidance pertaining to security issues.

With regards to the contentious topic of ICOs, which remain banned with an official decision still pending, Hong said, “We will determine our policy orientations on ICOs with relevant agencies after reviewing the results of the financial regulator’s market survey and getting feedback from experts.”

 

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Pro-Crypto Bill Proposed by South Korean Lawmaker

Pro-Crypto Bill Proposed by South Korean Lawmaker

A South Korean bill promoting cryptocurrency trading has been introduced in a bid to establish a robust digital asset ecosystem.

Crypto-bill

According to local media sources cited by BusinessTelegraph, South Korean lawmaker and National Assembly Political Committee member, Kim Sun-dong, announced the initiation of what he called the ‘Digital Asset Trading Promotion Act’. Elaborating on the intentions of the bill, Kim said in a press statement:

“‘The Digital Asset Trading Promotion Act’, includes a comprehensive plan for establishing a guideline for promoting the development of virtual currency exchanges and blockchain technology, tax reduction and exemption, measures against hacking damage, and prevention of market disturbances.”

Kim echoed the concerns that many have with regard to domestic crypto businesses leaving South Korea due to unaccommodating laws and regulations for digital assets. More specifically, Kim referred to the recent sale of cryptocurrency exchange giant Bithumb to a Singapore-based consortium. He acknowledged that domestic cryptocurrency transactions made up a significant percentage of domestic stock market trades at the beginning of this year, highlighting the negative economic impacts such moves can have.

Referring to the stifling impacts of over-regulation, Kim said:

“The government is focusing only on the risk of virtual currency and concentrating only on the crackdown of illegal activities… In order to lead the global trend of blockchain technology development, it is necessary to prepare laws and regulations as soon as possible.”

Crypto-exchanges

Due to the significant hacks that South Korean exchanges suffered earlier this year, regulators have sought to remedy the situation by increasing security and compliance measures. Though the move seemed positive at the time, it has eventually lead to exchanges being denied tax perks and financial incentives that are typically offered to venture capital firms as well as domestic small and medium-sized enterprises (SMEs). This has proven extremely unpopular among South Korea’s blockchain lobbyist groups and entrepreneurs.

Notably, the bill outlines that exchanges will be required to assume liability for customers crypto losses in the event of a hack.

As per the bill, “virtual content with an apparent value such as online money, points, game items and virtual currencies as digital assets”. It goes on to define exchange operators as digital asset trading companies, adding:

“Those who want to operate a digital asset trading business should have more than KRW 3 billion won [USD 2.66 million] in capital, enough manpower, computerized systems, and physical equipment to be approved by the Financial Services Commission [FSC].”

Blockchain nation

South Korea has been pressing tirelessly to establish laws and regulations that not only provide domestic startups with the grounding they need to thrive, but also establish whether or not initial coin offerings (ICOs) will be a part of the domestic blockchain ecosystem.

That said, South Korea is extraordinarily in favor of adopting blockchain technologies into public sector projects, voting systems, and energy grids. Should cryptocurrencies and ICOs fail to find the legitimacy they seek, the domestic blockchain industry should thrive as a whole, tokenized or not.

 

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Lithuanian Ministry of Finance Reveals Guidelines on ICO Tokens

The Lithuanian minister of finance considers the country to be in the “middle of explosion of ICOs and blockchain based projects”, as the ministry published a thoughtful guideline document that acknowledged “the brave new crypto economy world”.

In the document, the guidelines bring to light how cryptocurrencies should be regulated and taxed. It outlines that they are recognized as having the characteristics of securities, although for tax purposes, it doesn’t mean that they will necessarily be treated the same way.

The ministry of finance also splits cryptocurrency classifications into two parts regarding the recommended frameworks, which depends on whether a token “grants profits or governance rights”.

This applies to investors who acquire tokens through initial coin offerings (ICOs); though the existing legislature applies to “payment tool” tokens or access to particular products, the report recommends that several regulatory standards should be applied if a token grants profits or governance rights.

The ministry report breaks down ICO tokens into a variety of areas such as tokens that are issued, the ICO operator, if it participates in secondary market exchanges and whether the ICO is a crowdfunding activity.

Regarding taxation and asset class, the report reads:

“In terms of Corporate Income Tax and Personal Income Tax, according to the substance and economic sense of transactions, the virtual currency is recognized as current assets that can be used as a settlement instrument for goods and services or stored for sale.

For the purposes of VAT, the virtual currency is considered as the same currency as euros, dollars etc. For the purposes of other taxes, other type of instrument, e.g. certain types of tokens, may be recognized as a virtual currency as well.”

Earlier Discussions

In October 2017, the Lithuanian Central Bank issued an “approved position” on virtual currencies. Marius Jurgilas, Member of the Board of the Bank of Lithuania, described them as “an instrument involving high risk”. He went on to say that financial institutions that were operating legally and arewerealso under the supervision of the Bank of Lithuania “must strictly disassociate themselves” from them.

The October 2017 document raises awareness for financial services who engage in cryptocurrencies, the document had the intention to inform that these activities leave them open to the possibility of financial crimes, terrorism financing etc.

The report suggests that should financial market participants wish to do so, they would need to adhere to strict compliance requirements to prevent such matters.

However, in April 2018, the Central Bank of Lithuania began crucial discussions exploring the uses of cryptocurrency, engaging with commercial banks, government regulators and traders with the goals of creating a faster and affordable means to license the operation of ICOs.

The Baltic state of Lithuania is host to approximately 3 million inhabitants and, much like other small economies such as Malta and Gibraltar, it has successfully been an early adopter of cryptocurrency and blockchain projects. Should it manage to implement these guidelines, Lithuania will be a positive frontier for cryptocurrency and blockchain-related projects.

 

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South Korea’s National Assembly Proposes to Lift ICO Ban

South Korea’s National Assembly has made official proposals to allow for domestic initial coin offerings (ICOs) to be legalized, roughly eight months after the country banned all ICOs in September 2017.

South Korea has proven itself it be a fertile land for blockchain and cryptocurrency adoption; it is home to some of the largest exchanges in the world as well as the progressive visions for blockchain technologies to become a mainstay in South Korea’s capital city.

However, since the September 2017 ban, the country’s government has been sweeping the issue of ICOs under the carpet, but it is apparent that now that such significant advances have been made, it is about time the topic of ICOs comes to the forefront.

Ongoing developments

In early May, Bitcoin News reported that key governmental figures were banding together to draft a bill to lift the ban. A particular reason for the move was due to the fact that South Korean companies are raising their funds overseas in friendlier jurisdictions such as Switzerland and Singapore; it is not only costly for the companies themselves but also presents risks to investors who may fall victim to scam ICOs impersonating leading companies.

According to a report by Business Korea on 29 May , the special committee on the fourth industrial revolution went as far as to accuse the government of “neglecting its duty” in its slow response to the expansion of the blockchain industry.

The committee is also calling for a task force made up of both public officials and private experts to “improve transparency of cryptocurrency trading and establish a healthy trade order”.

Ban reversal

Business Korea also reports that the special committee on the fourth industrial revolution also said, “We need to form a task force including private experts in order to improve transparency of cryptocurrency trading and establish a healthy trade order”.

It continued, “The administration also needs to consider setting up a new committee and building governance systems at its level in a bid to systematically make blockchain policy and efficiently provide industrial support. We will also establish a legal basis for cryptocurrency trading, including permission of ICOs, through the National Assembly Standing Committee.”

The timely news arrives as proactive stances on regulation, and taxation frameworks in South Korea begin to set standards for the rest of the world. Additionally, the Business Korea report suggests that now discussions on blockchain and ICOs between the National Assembly and government will “accelerate”, which spells great news for domestic blockchain and cryptocurrency startups, not to mention the entire global industry.

 

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This Year’s ICO Funding Has Exceeded All of 2017

Initial coin offerings (ICOs) continue to rise in popularity; in the first three months of 2018, ICOs have managed to generate more money than they did for the entirety of 2017. According to the data collected by CoinDesk, that figure sits at USD 6.3 billion, 118% of the 2017 total.

It appears that despite the numerous minor and higher profile controversies that ICOs have been tied to, the digital funding method is rapidly gaining confidence across the board. In the winter of 2017, the markets were piping hot and yet, ICOs were cooling off.

Uncertainties caused by ICO bans were partly to blame for the dip in confidence, especially the prohibitions from South Korea and China which are two very prominent market forces. This news further fuelled the doubt of cryptocurrencies and the technology being stifled entirely, but as the numbers show, ICOs are thriving.

ICOs on the rise

The data reveals a month-on-month increase from December, which was at USD 1.44 billion. In January, that figure rose to USD 1.79 billion; in February it grew to USD 2.38 billion, a significant rise which preceded a minor dip in March which brought in USD 2.15 billion.

The leap in the numbers can be attributed to the increased size and rate of the average ICO; Q1 of 2018 has already launched 59% of the total ICOs that were launched the previous year. However, it is important to note that the figure is slightly skewed – Telegram had a gigantic ICO which raised USD 1.7 billion, but minus that figure and Q1 2018 ICOs stand at 85% of the 2017 total, which is still no small feat.

So far in 2018, 200 ICOs have taken place, (343 in total for 2017) and most of them are raising less than USD 100 million.

Growing a global ICO consensus

The US has also provided positive insights into future attitudes towards ICOs; the chairman of the Securities and Exchange Commission (SEC) Jay Clayton made comments suggesting that ICOs are securities, and can be classified and regulated as such, reducing risk and encouraging blockchain entrepreneurship.

It’s is widely understood that ICOs carry a high risk for investors, especially to those looking in from traditional investment positions. At the heart of the ICO issue is global regulatory uncertainty. Without a global consensus on how to legally operate and tax ICOs, the modern digital fundraising method will still have some hurdles to overcome.

As the year rolls on, conversations regarding ICO and cryptocurrency regulations have gone from skepticism to intriguingly progressive sentiment; France, the United Kingdom, Japan, South Korea and other countries are looking to make ICOs and their related technologies safe and fair for investors. They have the foresight to see that the technology will flourish should the “bad actors” within the industry be forced to work within legal, regulatory frameworks.

 

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