Can Cryptocurrency Thrive with Regulations?
While setting out to build a new a new blockchain system to protect medical records, Joachim Sandgaard realized there that doing an initial coin offering to raise funds was a good idea. Then the question of what to do about cryptocurrency regulations and regulators came up.
Successes and Failures
Hundreds of ICOs had previously raised billions to help finance ideas based upon blockchains all over the globe. However, the results varied. Filecoin had success. They raised over $200 million. Their goal is the reinvention of online file storage. They intend to use blockchain technology to accomplish that goal.
Others have not had success. Because of misleading claims and straightforward lies, they were shut down by regulators. For example, Centra Tech claimed that it was partnering with MasterCard and Visa. That was not true and the company, backed by boxer Floyd Mayweather, was shut down.
US Blockchain Company MedChain Working With Regulators
After considering the successes and failures of previous companies, Sandgaard decided the ICO for his Colorado-based MedChain company needed to be done right. To avoid problems with regulators, the MedChain team decided to treat their crypto-offering as a security. They got advice from Colorado’s securities commissioner Gerald Rome. They followed SEC recommendations.
MedChain then tested the waters with a pre-ICO last January. They went the crowdfunding route and raised almost $500,000. Their next step is a full ICO with a goal to raise $15 million.
Commenting on their approach, MedChain head Sandgaard said, “Nobody really had any guidance on how things worked. and there were definitely concerns on whether we could market this to U.S. investors at all. So we went with the approach that we had to adhere to all the rules and regulations of a security.”
Even though ICOs and blockchain projects seem to be a perfect match, the whole concept of a new digital currency created from computer code has been a cause for both confusion and concern from regulators, lawmakers and the general public for quite some time. Being able to find a workable balance between this new technology’s innovation and regulation has been elusive.
By going the crowdfunding route, these cryptocurrency tech start-up companies have found a new way to raise the money they need for their blockchain projects. Finding the right balance between cryptocurrency regulation and innovation appears to be getting closer. This more direct funding route allows them to bypass the traditional venture capitalist route. Rome appreciates their efforts. However, he wants to ensure that investors and their funds are protected.
The Regulators Point of View
Rome is advocating for caution. “There is a lot of enthusiasm and creativity going on in this industry. People are excited about it, and we think that’s a good thing. We support new innovation and new business in Colorado,” Rome offered. “I’ve been around a long time and I know that when there’s a lot of excitement and a lot of energy in a certain sector, like the dot.com bubble, there’s the potential for a lot of fraud and a lot of investors getting harmed and getting caught up with the enthusiasm going on. From our point of view, we just need to be a little careful with how we approach these things.”
The SEC has been taking action against ICOs. Securities rules violations and fraud have been the main thrust of the SEC’s enforcement. For example, September saw two ICOs promoting real estate and diamond investment backed cryptocurrency shut down because neither claim was true. In another instance, AriseBank in Dallas wanted to have an ICO to fund the forming of a decentralized bank. They not only neglected to disclose the criminal backgrounds of key executives, they said the bank accounts would be FDIC insured which was not true. The SEC stopped them too.
Despite SEC actions in the United States, ICOs continue to boom worldwide. Just this year, almost $9 billion has been raised by over 340 companies using ICOs according to the website CoinSchedule. To avoid cryptocurrency regulations, most of these ICOs were not available to residents of the United States.
Still, companies such as MedChain want to be open to the US market and see the benefit of SEC compliance. Might there be a fork in the crypto world happening between companies wanting to do business in the US and those resisting bureaucratic regulation in rest of the world?