The rules and regulations regarding cryptocurrency are still in a state of uncertainty. This is due to the meteoric rise in the market capitalization and popularity of cryptocurrencies overall. Regulation is currently lagging behind the technical innovations and practices involved in the world of cryptocurrency. Governments and regulatory agencies are still struggling to clarify how existing rules apply to cryptocurrencies and are in the ongoing process of creating and clarifying rules regarding the complex world of cryptocurrency. New rules specifically for cryptocurrencies are also likely to be implemented in the future. Therefore, issues revolving around cryptocurrencies are in a state of ongoing change.
Of particular interest are Initial Coin Offerings (ICOs). Simply put, an ICO can be viewed in a similar manner as an IPO. Often, a newly created cryptocurrency begins with an ICO sale to gather capital. The volatile and risky nature of ICOs means that they attract more attention and scrutiny from regulatory agencies.
On May 21, 2018, the North American Securities Administrators Association (NASAA) announced a “coordinated series of enforcement actions by state and provincial securities regulators in the United Stated and Canada” in order to crack down on fraud in cryptocurrency related investment and fraudulent Initial Coin Offerings (ICOs). This series of actions was dubbed “Operation Cryptosweep” and the goal was to eliminate cryptocurrency investment scams. This involves stopping misinformation and fraudulent practices, with a particular focus on Initial Coin Offerings. Regulators “identified hundreds of ICOs in the final stages of preparation before being launched to the public” and “some were determined to warrant further investigation”. Even the major cryptocurrency exchanges have not been immune to investigation by state securities agencies. The Investor Protection Bureau of the Office of the New York State Attorney General has sent Information Demand Letters to Binance Limited, Bittrex, Inc., Coinbase, Inc., and Gemini Trust Company, among others. The actions taken by regional securities regulators against individual cryptocurrencies and cryptocurrency exchanges include Cease & Desist Letters, Emergency Cease & Desist Orders, Information Demand Letters, and Investor Alerts.
Additional information regarding Operation Cryptosweep can be found here.