SEC Proposes Rules to Allow Crypto Issuers to Raise Up to $75 Million

The US Securities and Exchange Commission (SEC) has proposed new rules to allow cryptocurrency issuers to raise capital in the country. The proposal, known as Regulation Crypto Assets, would create two exemptions from Securities Act registration requirements: a startup exemption allowing issuers to offer up to $5 million worth of crypto assets over four years, and a fundraising exemption permitting offerings of up to $75 million in any 12-month period.

The proposed rules would also establish a conditional safe harbor for investment contracts involving crypto assets. Once an issuer has completed or permanently ended the 'essential managerial efforts' it promised to undertake, the underlying crypto asset could cease to be subject to federal securities laws, provided other conditions are met.

According to Sanjeev Bhasker, partner at K&L Gates and a former White House advisor on digital asset and emerging technology policy, 'the proposal would not provide the comprehensive framework contemplated by the CLARITY Act, but it could provide meaningful additional clarity and flexibility for issuers in the interim.'

SEC chairman Paul Atkins described the proposal as a response to regulatory uncertainty that has complicated capital formation and innovation among crypto asset issuers. The existing approach has created a 'square peg in a round hole' problem, with the SEC seeking to apply securities rules to crypto assets and transactions that do not always fit neatly within traditional securities frameworks.

The proposed rules would also preempt state securities law registration and qualification requirements for certain offers and sales made under the new framework. This could reduce some of the complexity around launching crypto assets in the US and provide a clearer route for companies wanting to raise capital while developing an asset and later move it outside the scope of federal securities laws.