It looks like ICOs, shorthand for initial coin offerings, are about to undergo a lot more scrutiny.
The SEC has concluded that the digital currencies will be regulated as securities, meaning unregistered offerings could be subject to criminal punishment. The decision was announced on Tuesday.
This is a blow to many startups that had been using ICOs as an alternative way to raise capital. There have been a wave of these offerings in recent months, where people have been investing in business ideas via Bitcoin or other cryptocurrencies.
But like all startups, these investments bear risks. And the opaque nature of the ICOs meant that there wasn’t oversight about what the businesses did with the proceeds.
Although many of the ICOs have been smaller unknown companies, the difficult fundraising environment has caused some venture-backed startups to raise coin offerings for enough capital to get them to the next step. Messaging app Kik was a notable recent example.
In anticipation of an SEC crackdown, some startups had already prohibited U.S. investors.
Featured Image: Anthony Bradshaw/DigitalVision/Getty Images