Reed Smith Client Alerts

As mentioned in our client alert last week, regulators across the globe have been speaking out (and in some cases acting out) on initial coin offerings (ICOs). From the U.S. Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) in the west, to Singapore, Hong Kong, China and Australia in the east, the ICO regulatory atlas is beginning to take shape. The UK’s Financial Conduct Authority (FCA) has now added itself to the map, as it too has released a statement noting that ICOs are “very high-risk, speculative investments”1.

Auteurs: Brett Hillis

Speaking to a group

What are ICOs?

Widely referred to as “token” sales, ICOs involve companies issuing digital coins in exchange for cryptocurrencies such as Bitcoin or Ether. In a similar (but crucially not identical) vein to the way in which a company will publish a prospectus prior to a float, token issuers will produce an online “whitepaper” business plan2 to promote the ICO. The tokens that are issued may represent a share in the firm, or an intangible right to a good or a service.

Until very recently, most token issuers were young companies hoping to fund a future project with the proceeds. However, other forms of ICO do exist. For example, social messaging company Kik (founded in 2009 and valued at more than US$1 billion) has offered investors the chance to purchase “Kin tokens”, which can be used to power future applications on its platform3.

ICOs are becoming increasingly popular, with over US$1.8 billion in cryptocurrency being raised in the first half of 2017, far outstripping the total figure for the entirety of 20164.