It appears that regulators are looking into ICOs, the Initial Coin Offerings by which many projects are raising financing at the moment. Regulators are rightly concerned with people losing money in speculative projects that fail to deliver or worse yet in outright scams. As regulators think about how to approach this area it will be important to keep a few things in mind:
1. Coins are sui generis. Coins are not equity, although they share some aspects of equity. Coins are not a pre-purchase, although they share some aspects of a pre-purchase. Coins are not currencies, although they share some aspect of currencies. Etc.for other currently regulated securities. Applying an existing regulatory framework to coins will be detrimental since it will not fit their unique characteristics.
2. Coins are global. This is not a US phenomenon. The issuance and purchase of coins is happening all around the world. A US only approach to regulation could easily be detrimental only to US-based projects and purchasers.
3. Coins represent innovation. Coins are both a technological and a financial innovation. They are integral to decentralized protocols and they allow for a novel way to finance the creation and operation of these protocols. In the early days of the web regulation took a pro-innovation stance, for instance by not having a sales tax on the internet.
4. Coin investors have a large risk appetite and tolerance. While this is not true for everyone, many of the people buying in ICOs are doing so with gains from investment in Bitcoin and Ethereum. They are almost by definition early adopters of technology.
Regulators need time for fact finding, including developing an in-depth understanding of how different coins operate and the range of projects that exists. While they do so, regulators could issue and publicize an immediate warning to consumers that ICOs are speculative, and require US-based ICOs to prominently display that warning, to reduce time pressure on coming up with the right regulatory approach.
