SEC Proposes New Crypto Rules with Limited ICO Funding Caps

The US Securities and Exchange Commission (SEC) has proposed new regulations for cryptocurrency assets, which may or may not spark another ICO frenzy. According to Winston & Strawn partner Drew Hinkes, startups could theoretically raise up to $75 million per year under the new rules.

However, Sidley financial technology and blockchain business head Lilya Tessler notes that subsequent fundraising is not automatically approved and requires re-submission of offering documents, SEC review, and ongoing reporting requirements. Issuers must also disclose funds raised under the exemption in the past 12 months to confirm they have not exceeded the funding limit.

The proposed rules also cap non-accredited investor participation at 10% of their income or net worth, whichever is higher. A Duke University financial regulation expert Lee Reiners notes that limited initial funding caps may make early token allocations more attractive but warns that the new rules are unlikely to repeat the ICO craze of 2017.

Reiners points out that many projects funded through ICOs between 2017 and 2019 ultimately failed, with up to 90% of them. The SEC estimates that around 130 issuances per year would use the two exemptions, while around 475 issuers might utilize a broader investment contract safe harbor.

While the proposed rules aim to provide clearer US funding pathways for token issuers, secondary market trading may still be subject to securities attributes grey areas. According to Drew Hinkes, transfers of non-security tokens may still be considered security transactions and could impact trading platforms.