Earlier this week, the SEC Chairman Jay Clayton released another "Statement on Cryptocurrencies and Initial Coin Offerings". I thought I'd take a stab at translating some of the jargon.

Link: SEC Statement on Cryptocurrencies and Initial Coin Offerings -- SEC Chairman Jay Clayton

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.”

It's interesting to note that while the SEC has repeatedly commented on the "legality" of such coins, at least as they relate to U.S. laws, I really can't think of a single ICO that has made its tokens available to U.S. citizens. If anything, most ICOs I've heard of tend to steer clear of anything to do with the U.S. and its property (ie. the U.S. citizens living around the world over which the U.S. claims jurisdiction). Granted, that doesn't mean clever citizens can't find ways to circumvent any "barriers to entry" that may confront them, such as bans for any IP addresses originating from the U.S.

Wall Street's "revolving door" between Goldman Sachs, JP Morgan, and the SEC remains strong. However, with all the capital pouring into the space, regulators are likely starting to feel left out! Imagine the personal benefits of creating legislation such as the notoriously onerous "BitLicense", only to turn around and get a cushy board seat on some well-capitalized blockchain company to avoid any more problems or scrutiny (BitLicense Creator Ben Lawsky is now a Ripple Board Member)!

As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.

That's definitely savvy advice, though interestingly enough over the years I've witnessed enough of the SEC's negligence to say that at best, they probably provide more of a false sense of security to all but the top market participants. If Goldman Sachs has a problem, victim or perpetrator, you can be quite certain who'll always have their back!

Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.

I mean, how many bankers or Wall Street executives went to prison in the aftermath of the 2008 debt crisis? While the SEC and other agencies may have collected billions in payoffs "fines" for countless “Neither Admit nor Deny” settlements, how much of that money is ever returned to the investors they claim to so voraciously protect?

How many years have Madoff victims been waiting for the chance at receiving just a small fraction of their money back. At least we can be comforted in knowing that all the lawyers involved are well-compensated for their trouble, to the tune of $925 MILLION and counting!

And how about the countless stock market pump 'n dumps I've also witnessed over the years, all well within the SEC's jurisdiction to "protect investors". Worthless stocks trading from 50 cents to $100/share within a few days, then back to 50 cents, destroying countless trading accounts along the way from those who firmly believed "there's just no way it can go higher than that"!

And I've also witnessed whistle-blowers lay out detailed cases for outright ponzi schemes in the market. The stocks sometimes traded almost back to where they started, sometimes even doubled, before eventually being scrutinized, investigated, and finally halted indefinitely sometimes many months later.

(Hayman Capital presents "UDFexposed: How a Texas Real Estate Developer Built a Billion Dollar House of Cards", with letter from Kyle Bass)

But just be aware, we may not be able to help you very much if someone steals your private key, zaps your funds across the globe in an instant, or if you decide to buy some shit coin over some shit stock! lol

And here's where it gets really interesting...

I also caution market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions. Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of “scalping,” “pump and dump” and other manipulations and frauds. Similarly, I also caution those who operate systems and platforms that effect or facilitate transactions in these products that they may be operating unregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.

And from another recent SEC press release referred to by this one:

Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement. The SEC’s Enforcement Division and Office of Compliance Inspections and Examinations encourage investors to be wary of investment opportunities that sound too good to be true. We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons.

Link: SEC Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others

So, there's a whole bunch of "interesting" tidbits revealed here. While I've gotta wonder who'd be foolish enough to dump money into any "investment" Paris Hilton might decide to promote, such "paid endorsements" should most certainly be fully disclosed. However, by cautioning "market participants against promoting or touting the offer and sale of coins", as "Selling securities generally requires a license", it does indeed open the door to interpretation.

I mean, when I read posts on STEEMIT discussing one ICO project or another, couldn't that be considered "promoting" as well? While you're probably fine discussing the pros and cons of various ICO projects, you're better off staying away from providing any kind of concrete "investment advice". And of course, be sure to disclose any potential conflicts of interest you may have as well!

Here is another paragraph from an SEC document describing its take on "Advertisements":

Advertisements, as defined in the Advertising Rule, can encompass a broad array of statements. The Advertising Rule states that an “advertisement shall include any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.” Adviser statements made through electronic media, or other nontraditional styles of presentation may fall within the purview of the Advertising Rule.

Link: The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers

Come on, is that really just a "utility" token, or is that still a SECURITY?!

And here's another biggie that I'm sure you've all come across. That's not a security, because it has an actual "USE CASE" for it! I have often told people that's just not gonna cut it, and sooner or later the SEC will likely clarify and reiterate that it still sees these as fluctuating assets that people exchange with the hope and expectation of profit. Even more to the point, some ICOs made it even easier for the SEC to make this claim by emphasizing the secondary market trading potential of their ICO coins (the ability to speculate on their future value by trading them on various crypto exchanges):

Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.

It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.

In Conclusion...

Just be aware that governments can basically come up with any rules they want to go after you, if it's in their best interest to do so. Often times, it takes little more than "enforcing" just a few of the thousands of conflicting rules and regulations they already have cluttering up their books.

But perhaps one the greatest ironies came earlier this year when the SEC chose to reject the Winklevoss' ETF filing. The news alone crashed the bitcoin market by nearly 20% (back to around $1000/each), or about 1/3 the move of a shitty biotech trial failure. The SEC made the following claims, as always in the best interest of protecting foolish investors everywhere from those crazy volatile unregulated bitcoins:

• The agency noted that, to be approved, an exchange offering a bitcoin ETF would need "surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated."

• "Based on the record before it, the commission believes that the significant markets for bitcoin are unregulated."

• One commenter states that the market for bitcoin, by trade volume, is very shallow.

• This commenter also states that several fundamental flaws make bitcoin a dangerous asset class to force into an exchange traded structure, including shallow trade volume, extreme hoarding, low liquidity, hyper price volatility, a global web of unregulated bucket-shop exchanges, high bankruptcy risk, and oversized exposure to trading in countries where there is no regulatory oversight.

Now, just 8 months later, with those those pesky volatility risky bitcoins trading well over $15,000 (not even counting the forks), apparently the CFTC sees fit to allow not ONE, but THREE futures exchanges start trading regulated bitcoin futures contracts (cha cha cha CHING)! That even includes the Nasdaq STOCK exchange, which seems intent on breaking its way into the futures space starting with, of all the possibilities, its own version of a bitcoin futures contract!

While from my perspective the whole world is just "fun 'n games", I suppose the illusion has suddenly been accepted as reality, especially with all the real bucks now at stake, and everyone wanting to grab their piece of the virtual pie...

The Winklevi must be shaking their heads and ROFLing all the way to their virtual bitcoin bank vault! lol

Don't run, we are the government. We're here to help!

And Finally (Part 2) ...

To address one last point from the SEC letter:

They [cryptocurrencies] are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen but do not have the backing of a government or other body.

As for the crypto bubble, perhaps this "movement" isn't so much about people around the globe inflating a "crypto bubble", as it is about them slowly waking up to one of the greatest delusions and "confidence games" of all time.

They are starting to deflate the world's greatest bubble of all... debt-impaired, politically-abused, government-controlled FIAT currency...

As always, I appreciate your upvote, your follow and all your comments!