The Crypto-Securities FUD
I received a concerned email from an employee about the Monetary Authority of Singapore [MAS] warning Eight Crypto-Exchanges. The discussion around the office kitchen again was about the regulatory action of the MAS and should people be concerned. The Fear Uncertainty Doubt [FUD] monster stalked the corridors again!
Phew! I dont know how many times I have to inform people about the reality of the crypto-regulatory world. If you are in this space, see a new website www.crypto-regulations.org
The FACTS are….
- If your crypto-coin is a security then it can only be traded on a securities licensed exchange. No crypto-exchange in Singapore has this license. Frankly, few in the world have this license.
- If your crypto-coin is a security then you must work within securities legislation.
- 99% of crypto-coins are NOT securities and thus points 1 & 2 are irrelevant.
- It is the MAS’s job to remind this new industry to work within the rules YET if you are not in securities, these warnings are irrelevant!
The $64,000 question is whether a certain crypto is a security.
In the USA, the SEC has claimed that all crypto are securities. Th three other regulatory bodies like IRS have a different classification. Is it any wonder that the crypto market in the USA is a total mess with FUD ruling the roost. Like most of the industry, just keep out of the USA.
And if you are worried about the SEC reaching to get you outside of the USA and you have not actively marketed to US based citizens, then you really really have to chill out! They cant touch you. All the stories are BS. If your lawyer tries to warn you about the SEC, change lawyers.
If you are really interested [LOL], the Act covering securities is Securities and Futures Act (SFA). See https://sso.agc.gov.sg/Act/SFA2001
Definition: “securities” means — (a) debentures or stocks issued or proposed to be issued by a government; (b) debentures, stocks or shares issued or proposed to be issued by a corporation or body unincorporate; (c) any right, option or derivative in respect of any such debentures, stocks or shares; (d) any right under a contract for differences or under any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in —
(i) the value or price of any such debentures, stocks or shares; (ii) the value or price of any group of any such debentures, stocks or shares; or (iii) an index of any such debentures, stocks or shares;
(e) any unit in a collective investment scheme; (f) any unit in a business trust (g) any derivative of a unit in a business trust; or (h) such other product or class of products as the Authority may prescribe,[2/2009 wef 20/04/2009]
but does not include — (i) futures contracts which are traded on a futures market; (ii) bills of exchange; (iii) promissory notes; (iv) certificates of deposit issued by a bank or finance company whether situated in Singapore or elsewhere; or (v) such other product or class of products as the Authority may prescribe as not being securities; [2/2009 wef 20/04/2009]
I have talked to leading lawyers including the legendary Nazim Ismail, ex-MAS division leader and now crypto-legal guru in Singapore. His rely [in my words] on this subject is simple, its easy to tell if a crypto is a security and most are not. So don’t worry. If not sure, a simple visit to an experienced lawyer will fix concern.
The truth is that this is a obscure subject. They are some ‘tokens’ that people claim are ‘utility tokens’ yet they ‘utility’ is very weak if not absent. Thus the coin is simply an investment vehicle to fund the business. That to me is a security.
And this is a problem….for the future.
Here is my view [as will be stated in my new book].
There are seven ‘use cases’ for Crypto.
Three types are ‘Commodities’ or ‘Currencies’. They obviously aren’t securities yet there will be regulations for those exchanges dealing in them like ‘Money Broker Licenses’. You hold/deal in the publics money, the government needs to know you are ‘fit and proper’.
Two types of Use Case are Utility and Membership Tokens. They are NOT securities IF they can prove that the primary use of the token [i hate that term] is to drive the blockchain or build the community. Its all about Intrinsic Value.
Lastly, I believe that there will be two Use Cases based on:
- Crowding-Funding Early Stage Technology business [Innovation Coin] and
- Providing investment access to high quality assets like property [Asset Coin]
These will be the largest sectors for crypto. They are securities YET they will need special legislation to support them. Innovation Coins will need an adaption of the [flawed] crowd-funding rules in most countries and Asset Coins will need new legislation or the funds will simply crowd them out.
Current Coins are securities?
There is the Top 23 and all $1bn coins. Not a security in sight!
Bitcoin — Commodity
Ether , EOS, Cardano, Tron, IOTA, NEO, NEM, VeChain, Qtum, icon — Utility
Ripple, Bitcoin Cash, Litecoin, Stellar, Dash, Monero, Tether, Bytecoin, Zcash, OMG, — Currency
Binance — Membership
This is why I am not concerned for 99% of exchanges.
There are a ton of small coins that could only be classified as securities. The only reason they exist is to fund development, not Commodity, Currency, Utility or Membership. Dont be surprised when the government slams these and the exchanges that carry them.
Hope this helps [pardon the crap grammar]