SEC crypto rules proposal unlikely to revive ICO boom

The SEC proposed Regulation Crypto Assets rules that would create two exemptions for certain investment contracts involving crypto assets. The broader exemption would allow qualifying issuers to raise up to $75 million in each 12-month period. Drew Hinkes said issuers could conduct distinct serial raises of up to $75 million every 12 months. Each new raise would require a new offering statement and SEC staff review. Issuers would also need to file annual and semiannual reports. They would need to disclose amounts raised under the exemption during the prior 12 months so the cap can be verified. The other exemption would allow startups to raise up to $5 million over four years. Lee Reiners said the $75 million exemption could make public token offerings more feasible but was unlikely to revive the ICO boom. Reiners said limited initial allocations could become more attractive if investors expect later offerings at higher valuations. Lilya Tessler said issuers can rely on the exemption more than once, but each raise is not automatic. Tessler said nonaccredited investors would be limited to buying 10% of the greater of their income or net worth in a token sale. The SEC estimates that about 130 offerings would use the two exemptions each year. The SEC estimates that about 475 issuers could use the broader investment contract safe harbor. Reiners said investor appetite, token economics, liquidity, custody, and reputational damage from the previous ICO cycle would continue to shape fundraising markets. The proposal would create an explicit regulatory pathway instead of requiring issuers to assess whether offerings fit existing securities law frameworks. The proposal says an investment contract linked to a crypto asset can continue transferring to subsequent purchasers until the asset separates from the issuer's representations or promises. Drew Hinkes said a secondary-market sale could be treated as a securities transaction if the investment contract transfers with a non-security crypto asset. Lilya Tessler warned that a public offering exemption could enable regulatory arbitrage. Lee Reiners warned that investors could remain exposed to opaque disclosures, concentrated insider holdings, and aggressive promotion.