One of crypto’s largest hedge funds Pantera Capital told Bloomberg that around 25 percent of the digital currency projects in its portfolio may have to refund the money.
Roughly a quarter of these projects could be in violation of securities laws.
Ok, so what’s this SEC mess all about?
The SEC is a big topic right now in the blockchain and cryptocurrency space. It’s what regulates everything. In short, because they decide which types of investments that “ordinary people” can invest in.
VCs, banks, funds and accredited investors aren’t held to that same tight standard — The SEC figures that “sophisticated investors” are supposed to know what they’re doing, so the SEC gives them much fewer protections and rights for claims, etc.
So, what always happens every time there’s a new type of investment area (like blockchain or any other kind of new tech) is that the sophisticated hedge fund money pours into the sector, and the early birds make a ton of money.
But then the general public, mom-and-pop “investors” start to notice that the big boys are making money. So, they want to participate in the gold rush…. with their life savings.
Right about the same time, unscrupulous promoters flock into the niche, and they begin marketing “crypto” investments to ordinary people who arent’ rich.
By now, most of the “real deals” are taken by the early wave of savvy investors, and the peak of excitement is past.
Next the ordinary citizens lose their money on “crypto” deals of all kinds, then the burned citizen calls his/her congressman to complain about blockchain investments.
Then those congresspeople contact the SEC, and the SEC, CFTC, etc. all begin cracking down, policing the marketplace for quality, in effect.
Hopefully, that gives everyone a brief summary of the SEC mess.
What did the SEC talk about?
In an announcement on Nov 16, the US Securities and Exchange Commission (SEC) stated that two startups, Paragon Coin and AirFox, had raised millions of dollars’ worth of funds by issuing tokens that did not comply with US securities laws as they were issued to non-accredited investors.
In order to get on the right side of the law, it seems, any startup in the same position has a pretty clear path ahead of them. Pay the penalty, offer a refund, and register with the SEC.
Now the problem is that these blockchain startups raised funds to build products and teams and much of the funding has already been spent.
If they did not register with the SEC and they sold tokens indiscriminately to everyday people rather than accredited investors, their doors would certainly be knocked on.
Now there’s more.
Pantera’s co-chief investment officers Joey Krug and Dan Morehead stated in a newsletter on Thursday:
While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25 percent of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using regulation D or regulation S.
The new trend wave is to use STOs for their filings. Will this end the non regulated ICO craze? Nobody is sure, but we all hope that things do eventually stabilize.