Ethereum News Update
Although cryptocurrency prices recovered slightly on Sunday night, the market is still burdened by what appears to be a regulatory crackdown in the United States.
So it hardly matters that Ethereum prices are up 4.66%. Hours earlier, the world’s second-biggest crypto hit a three-month low, making the gains seem less like a recovery and more like an air freshener used to mask an uncomfortable odor.
What’s at the heart of this stench? Regulation, of course.
The U.S. Securities and Exchange Commission (SEC) started handing out subpoenas to blockchain startups last month. Ostensibly, the SEC is going after companies that issued suspicious tokens, but investors are afraid there’s more to the story.
Investors think the SEC is labeling all initial coin offerings (ICOs) as “securities.”
This could be problematic, mainly because labeling them “securities” would prevent retail investors from being able to invest. Only accredited investors—anyone with $1.0 million of net worth or $200,000 in annual earnings—are allowed to take part in those funding rounds.
Naturally, this would slow down investment in the blockchain space. But it’s also grating on a more fundamental level. The whole point of decentralization is to get rid of gatekeepers, particularly in finance. Now that dream is in jeopardy.
Or so we think.
Investors are overreacting, in my humble opinion. Yes, the SEC has “dozens” of ongoing investigations. Yes, the SEC is narrowing the definition of a utility token. Yes, exchanges will probably have to register with the government. (Source: “SEC Working on ‘Dozens’ of Cryptocurrency Probes, Official Says,” Bloomberg, March 15, 2018.)
But no, that doesn’t mean you should run for the hills. Here’s why.
Does anyone truly believe the cryptocurrency space was scam-free? There are 1,565 cryptocurrencies listed on CoinMarketCap.com. How many were there a year ago? Half that amount, at most.
This rapid growth almost assuredly came with dozens of suspicious tokens. So why are we surprised to see dozens of ongoing investigations?
Second, labeling ICOs as “securities” is not a death sentence for the industry.
Think of “Kickstarter,” “Indiegogo,” “Angellist,” and other crowd-sourcing platforms. Many of these platforms allow retail investors to buy equity in startups, albeit with a handful of restrictions. Maybe ICOs will receive a similar treatment. (Source: “Updated: Crowdfunding and the JOBS Act: What Investors Should Know,” Financial Industry Regulatory Authority, May 17, 2017.)
The SEC was forced to implement new crowd-sourcing rules under the authority of Title III of the JOBS Act. It’s unlikely that they will simply ignore those precedents when trying to regulate ICOs, so I wouldn’t lose hope just yet.
Sure, exchanges may have to register with the SEC in order to minimize fraudulent behavior, but that’s a small price to pay for the continued existence of blockchain startups. I’m pretty optimistic, actually.
It’s hard for me to believe that the market is accurately pricing ETH and its peers. So I still believe that our $1,500 Ethereum price forecast for Q2 is reasonable and within reach. And as such, I will leave that price target unchanged for the moment.