Cryptocurrencies and blockchain technology may be here to stay, but so are the regulatory bodies that are desperate to shut them down. In light of this fact, private ICOs (also known as private placement ICOs) might be the way to go, especially for newer blockchain startups who are launching post “bitcoin-mania” circa November – December 2017.
A quick primer on the history of bitcoin shows that bitcoin, and by extension cryptocurrencies in general, were created to avoid the pitfalls of centralized monetary systems and the perceived failures of fractional reserve banking. When bitcoin launched in January 2009, the world was still reeling from a global financial crisis that saw assets get wiped out–home prices, pension plans, retirement savings, you name it.
What’s the Regulatory Environment for ICO Private Placements?
Ever since then, and perhaps as a result of the so-called “nefarious purposes” of cryptocurrencies, regulatory agencies all over the world have and will continue to crack down on all things crypto. Jay Clayton, the sitting US Securities and Exchange Commission (SEC) chairman, somewhat recently commented before the US Senate, “I believe every ICO I’ve seen is a security. … ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story.” This very black-and-white declaration doesn’t bode well for blockchain startups who are trying to launch an honest business. Something needs to be done.
Public ICOs, in one sense, is out. Something needs to fill their place, particularly a fundraising method that avoids regulatory scrutiny. Enter the private ICO offering. Imagine for a second if bitcoin actually had a “bitcoin private ICO”, rather than function as the open source code and father-figure cryptocurrency it is now. To be sure, crypto may not have caught on in the same way, but in one sense, bitcoin would be under much less scrutiny.
This is true for ICO private sales and ICO private pre-sales alike. One of the major benefits of going down the private blockchain money route is that regulators are less likely to aggressively pursue private funding ICOs. This is because they already have hundreds if not thousands of other ICOs and public blockchain startups to worry about.
Those that are offering token-backed stakes to the general public will likely attract more regulatory attention than those who target sophisticated, accredited, and sometimes personally-connected investors. To be clear, this doesn’t mean that fraudulent companies should go down the private route–this is always illegal and should be snuffed out as soon as possible. It does mean, however, that startups should seriously consider conducting a private blockchain round of fundraising, if not two.
Not Sure About Private ICO Offerings? Talk to the Team at IBC!
At the end of the day, each company must decide for itself if ICO private funding is the way to go. We can help you determine if the private route is beneficial, and we can walk you through the process from start to finish.