Blockchain cryptocurrency has been on quite a rollercoaster ride over the last 18 months. Companies like Bitcoin have seen their cryptocurrency go from $20,000, down to $3,000, and back up to $11,000 over time. Despite this, and many naysayers, it seems that Bitcoin and others are gaining increased attention from state entities. Among these include the Securities Exchange Commission, as increasing pressures for cryptocurrency regulation mount.
The SEC has made it more challenging for blockchain operators to gain funding in the past many months. Initial Coin Offerings (ICOs), which were used to fund blockchain companies, are more cumbersome now with investor protections in place. But recent SEC rulings concerning Blockstack, a new blockchain company, suggests the pathway to ICOs may be easing. But at the same time, this may also indicate a stronger commitment to cryptocurrency regulation by the SEC.
Renewed Interest in Blockchain and in Cryptocurrency Regulation Processes
Over the course of the last several months, a few major developments have occurred in the blockchain world. For one, advancing trade wars with China have made some investors seek safe havens for their investments. Cryptocurrency investments offer options in these times that have asymmetrical risk. In other words, the risk of losing everything is low, but the chance of gaining tremendous amounts is substantial. As suggested by Jerome Powell, cryptocurrency thus offers a place to store investments no different than gold. As a result, greater demand for cryptocurrency investing has risen.
Secondly, SEC rulings have also been noteworthy in this regard. Blockstack, founded in 2013, was granted the opportunity to offer digital tokens to investors. As its approved Regulation A+ public offering, the SEC’s cryptocurrency regulation allows Blockstack $28 million to trade in digital tokens. This can be provided as an ICO to investors, which allows opportunities for Blockstack to gain funding. And it also suggests the SEC is exploring how to better provide cryptocurrency regulation in the process.
Cryptocurrency Regulation Issues and Potential Pursuits
The recently increased cryptocurrency regulations have involved demands for greater transparency for investors in Bitcoin and similar currencies. Regulation D does not require SEC approval for ICOs. However, companies choosing this route are limited to accredited investors with $5 million in assets and $1 million in net-worth. Otherwise, SEC approval is required. Blockstack chose Regulation A+ as an alternative, which notably offers some important advantages.
The agreement Blockstack arranged with the SEC allows a broad audience of investors to gain access to its cryptocurrency, called “Stacks.” This differs from other cryptocurrency regulations that limit options to accredited investors only. At the same time, however, Blockstack must attain one million verified users by January 2020. If not, they must refund investments made as part of the cryptocurrency regulation oversight. As is evident, the SEC seems to be exploring new ways to provide cryptocurrency regulations without stifling innovation.
In the absence of cryptocurrency regulation, concerns exist about illegal activities and financial stability. President Trump tweeted his lack of support for blockchain and related cryptocurrency processes without oversight. In the absence of cryptocurrency regulation, he voiced concerns over money laundering and other unlawful activities. The deal with Blockstack suggests that there are efforts to enforce such regulatory efforts.
Can Blockstack Succeed Under Cryptocurrency Regulations?
Believe it or not, whether Blockstack succeeds may impact the entire cryptocurrency sector in total. Should Blockstack fail to attain 1 million users by the deadline, the repercussions on the entire market could be substantial. But at the same time, Blockstack’s success could signal a way forward with the SEC’s approval. In fact, You Now Inc., another blockchain company startup, also received Regulation A+ approval from the SEC recently. This approach is notably more appealing that Regulation D, especially for startups.
With these pressures in mind, Blockstack has pursued interesting measures to help improve its chances. For one, it already has over 170 applications for its cryptocurrency use. This was possible by offering application developers the opportunity to earn Stacks in exchange for their apps. As a result, this makes Blockstack much more attractive to users, especially if several user interfaces and exchanges exist. Likewise, having been around for six years, Blockstack has had time to refine its privacy and exchange platforms. These should also position them better for success under the current cryptocurrency regulations.
The Jury on Cryptocurrency Regulations Long-Term Is Still Out
At this point in time, the SEC has leverage over blockchain entities since there is a need for investor funding. But in the future, this may not be as important. Blockchain cryptocurrencies like Bitcoin, Ethereum, and even Blockstack lack intermediaries between consumers and retailers. Thus, the need for SEC regulation is not necessary nor it is a requirement. This differs from other similar pursuits like Facebook’s Libra digital currency. It may, therefore, be difficult to oversee cryptocurrency activities in the future given the nature of blockchain’s infrastructures.
However, for now, it appears SEC is striving to achieve some middle ground. Based on Blockstack’s arrangement, the SEC seems to be seeking some control without squashing cryptocurrency altogether. The real test may come when and if global use of blockchain and cryptocurrency takes hold. If that should occur, cryptocurrency regulations and oversight may not be implemented easily.