Last week I had the honor of attending the Digital Currency Group’s executive summit in Lake Tahoe. It was a wonderful event that brought together the founders, CEOs and C-suite executives of a number of their portfolio companies.
Although the canoeing and high roping were exhilarating, the real adrenaline rush came from tapping into the insights of the leadership of some of the most important companies in the crypto space. I learned a lot from the event, and I’ll share with you my five key takeaways below.
ICOs are Currently Dead…in the US
Over the last year, the Securities and Exchange Commission (SEC) froze the ICO market by (i) indicating that all ICOs are securities offerings, (ii) issuing subpoenas to a wide range of leading industry participants, and (iii) criminally pursuing “bad” actors. Given the harsh penalties at stake, most reputable projects are scared to move forward.
So now, the market lays in wait for greater regulatory certainty. One of my favorite quotes from the conference was “the SEC said don’t speed, but didn’t give us a speed limit”, which I think sums up the situation perfectly.
So the ICO market is essentially on hold until the security token exchanges (like Templum, tZero and Polymath) are up and running. Though many at the conference were skeptical about when these exchanges will be up and running, I believe we’ll start to see Security Token Offerings (STOs) heat up in 2019. Many projects are already heavily invested in launching STOs and are well along in the process, which gives them a strong incentive to push things forward.
If You Haven’t Been Subpoenaed by the SEC, You’re Doing Something Wrong
As mentioned above, in recent months the SEC has been cracking down on ICOs across the board for unregistered securities offerings. They have subpoenaed most, if not all, of the leading players in the space mainly to ask about their investments in previous ICOs to determine whether the ICOs were unregistered securities offerings.
One of the interesting remedies the SEC is discussing is the “right of rescission”. This is a legal remedy that allows investors who participated in unregistered securities offerings to unwind their purchases. Essentially investors return their tokens and receive their original investment back.
Rescission rights could be a heavy blow to the industry. Take for example the situation where a token was issued at $10, but is now trading at 25 cents. Investors that invested at the outset could return their tokens and receive their original investment. As you can imagine, this would be pretty devastating for any project.
Wall Street Money is Coming to Crypto
Regardless of whether a Bitcoin ETF is or is not approved in the US, it is clear that Wall Street money is entering the market and 2019 should be a banner year. This will give legitimacy to crypto as an investment vehicle and not just a fringe movement of libertarians.
As more money enters the market, it may help crypto prices rise but more importantly, it will increase trading volume and liquidity while narrowing spreads.
That said, Wall Street money comes with more sophisticated investment vehicles, many of which will allow investors to short crypto. This could send prices down just as easily they are pushed up by the influx.
Crypto is at a Fork in the Road
Another very interesting take away from the event was the debate between industry experts and financial historians on the direction that crypto will take in upcoming years. The general consensus was that crypto is currently at a fork in the road and there are one of two directions the industry can go depending on government regulation.
One way is the “blockchain – libertarian” path, which is the decentralized and private protocol originally envisioned by Satoshi.
The other way is the “Communist – Artificial Intelligence” path, which is the centralized and government-controlled protocol currently being developed by China. This approach would allow the crypto industry to develop, but with backdoors into everything.
Which path the crypto industry ultimately takes is unknown and hinges greatly on what US regulators decide.
Privacy Coins Will Get Attention in 2019
In the wake of the most recent Facebook data breach, public awareness of data privacy issues is clearly on the rise. Both individuals and companies are increasingly interested in digital solutions that will afford them greater levels of privacy.
For companies building on blockchain, privacy-oriented blockchains like Horizen are becoming more attractive than ever. As a result, privacy-focused projects across the board are going to gain a lot of steam in the next year.
But, as we’ve discussed previously, regulators aren’t fans of digital privacy and they try to obstruct this wherever they can. While regulators may not be able to completely strip anonymity out of crypto projects, they will be able to lay down even stricter KYC and AML standards and penalties to pressure projects into cooperating.
What Does This Mean for Crypto Law Insiders?
Insiders should be generally optimistic about the direction the crypto industry is heading in. Although there are still serious regulatory concerns, business is moving forward positively. Wall Street money is coming. Technology is progressing. And the industry is professionalizing.
Of course, it is disappointing to hear that the decentralized, private and libertarian path envisioned by Satoshi is at risk. If you care about the path blockchain takes please visit CoinCenter.org to learn more about the public policy issues at stake and how you can get involved.
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