The price of Bitcoin has dropped by 10 percent over the last 24 hours following a severe sell-off. Yet, several low market cap crypto and tokens have plunged by twice that amount, posting losses in the range of 20 percent.
ERC20 tokens launched on top of the Ethereum blockchain network have performed especially poorly against both Bitcoin and the US dollar over the past several days.
Waltonchain, Lisk, ICON, Ontology, Golem, VeChain, WanChain, and many other tokens backed by active developer and investor communities declined substantially in the last week. Even Basic Attention Token (BAT) and 0x (ZRX), which experienced strong short-term upward movements prior to the Coinbase listing, dropped by more than 36 percent.
Is the US Going After ICO Projects?
The listing of BAT and ZRX by Coinbase confirmed that the two tokens are not considered securities under existing regulations set forth by local financial authorities in the US. Coinbase was cautious in listing tokens on its platform because in an event wherein the tokens listed by the exchange are identified as securities, Coinbase could be targeted by the US Securities and Exchange Commission (SEC) for the distribution of unregistered securities.
It is possible, as government enforcement defense and securities litigation attorney at Kobre & Kim, Jake Chervinsky, said, the SEC is preparing to take down many cryptocurrency exchanges and initial coin offering (ICO) projects, with many pending cases in the hands of the commission.
“Most enforcement actions are kept confidential until they’re resolved to protect both the defendant (from bad press) & the government (from losses & inconsistencies). That’s why this case was settled before it was announced. On that point, remember all those subpoenas the SEC sent out earlier this year? Just because you haven’t heard about them recently doesn’t mean there aren’t dozens of investigations going on behind the scenes. Sooner or later, the floodgates will open,” Chervinsky said.
In an official announcement, the SEC disclosed that EtherDelta co-founder Zachary Coburn agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty, showing that the case was settled between Coburn and the SEC prior to the release of the statement.
At the Investment Adviser Association conference in Washington, D.C., Stephanie Avakian, co-director of the SEC’s Enforcement Division, confirmed that dozens of investigations into ICOs are underway and expects to see more in the future.
“We are very active, and I would just expect to see more and more,” she said, according to Bloomberg.
ICO Projects on Thin Ice
In the upcoming months, the cryptocurrency space is expected to see several pending cases against cryptocurrency exchanges and ICOs brought up by the SEC. The regulatory uncertainty in the ICO market surrounding tokens could lead to a decline in confidence from investors towards small market cap cryptocurrencies.
EtherDelta co-founder Zachary Coburn and the exchange were charged with the distribution of unregistered securities, which suggests that the SEC has cooperated with Coburn to understand the nature of several, if not dozens, of tokens considered securities under US regulations.
The drop in confidence from investors and the market could lead to a bleed out for tokens until the SEC provides a clear guideline to provide clarity in the space.