Viewpoint: The "Cryptocurrency Asset Regulation" proposal introduced by the U.S. SEC may not trigger a new wave of ICO frenzy

According to Cointelegraph, the SEC has released proposed rules for the "Regulation Crypto Assets," setting two exemptions for specific investment contracts involving crypto assets: allowing startups to raise up to $5 million in a one-time financing within four years; and allowing qualified issuers to raise up to $75 million within any 12-month period, with the possibility of conducting different rounds of issuance in subsequent years.

Drew Hinkes, a partner at Winston & Strawn, stated that as long as each round of financing is an independent issuance, projects could theoretically raise $75 million every 12 months. Lilya Tessler, head of Sidley's fintech and blockchain practice, noted that subsequent financing is not automatically approved; issuers must resubmit offering documents, undergo SEC staff review, continuously submit annual and semi-annual reports, and disclose funds raised through the exemption in the past 12 months to confirm they have not exceeded the financing cap. The proposed rules also limit the participation scale of non-qualified investors, with their purchase amount not exceeding 10% of the higher of their personal income or net worth.

Lee Reiners, a financial regulation expert at Duke University, indicated that the limited first-round cap may make early token allocations more attractive, but the rule is unlikely to replicate the ICO boom of 2017. Among projects that raised funds through ICOs from 2017 to 2019, as many as 90% ultimately failed.

The SEC expects that approximately 130 issuances per year will utilize the above two exemptions, with about 475 issuers potentially using a broader investment contract safe harbor. The proposed rules will provide token issuers with a clearer path for financing in the U.S. compared to the current system, but secondary market trading may still exist in a gray area of securities attributes. The proposal stipulates that investment contracts related to crypto assets may continue to trade in the secondary market along with token transfers until the asset is separated from the issuer's statements or commitments.

Drew Hinkes stated that if non-security tokens transfer investment contracts from seller to buyer, such transactions may still be considered securities transactions, impacting trading platforms. Lee Reiners also mentioned that some issuers may meet the formal requirements for exemptions but still influence token value through team management efforts, concentrated insider holdings, and aggressive promotion.