SEC Chairman Distinguishes Cryptocurrency from ICO’s, Traders are Confused

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What is the difference between an ICO and a cryptocurrency? Well, according to SEC Chairman Jay Clayton, Cryptocurrencies such as Bitcoin (BTC) shouldn’t be considered a security, however, the agency chairman believes that an ICO is a security.

Why is this though? Basically, it comes down to the risk factor: An ICO is considered more of a risk for investors as many of these “coins” may not make to full fruition — meaning the return promised to investors may never happen. It is also well known that many ICO’s are purely fraudulent/scams disguised as legitimate investment opportunities. However, if a coin makes it passed the ICO phase and becomes established — it no longer is a risk in the same manner. It becomes a currency such as USD or Yen, where its value depends on market fluctuations and trends and is the sole risk of the investor — much like the regular stock markets.

Jay Clayton’s remarks have refired a debate over the difference between ICO’s and digital tokens. This is a debate that has already existed over the last few years and once again traders and market participants are showing their concerns.

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Source Image: twitter.com

The Chairman says they are not going to change the definition of security, as the U.S. has already built a $19 trillion securities market on the current rules.

We are not going to do any violence to the traditional definition of a security that has worked for a long time,” Jay Clayton told CNBC on Wednesday. “We’ve been doing this a long time; there’s no need to change the definition.”

Explaining his stance, the SEC chairman says that cryptocurrencies simply “replace” sovereign currencies, including the euro, the dollar, and the yen. Therefore, these types of currencies shouldn’t be deemed as securities.

A token, a digital asset, where I give you my money, and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’ that is a security, and we regulate that,” Clayton said. “We regulate the offering of that security and regulate the trading of that security.”

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Source Image: twitter.com

Traders are questioning, however, that all tokens are issued or begin life through ICO’s. So how does it make sense that the existing token is considered currency, but at the time of ICO, it’s considered a security? Previously, several other experts, including Federal Reserve Chairman refused to accept cryptocurrencies as currency but still have given different arguments which aren’t akin to the SEC Chairman’s point of view. The debate is on and market participants are presenting their ideas, but the SEC Chairman at the end of the day holds the legal position to define the difference between cryptocurrencies and ICO’s.

By Siraj Sarwar

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