Cryptocurrency

Regulators are turning up the heat on companies looking to cash in on the cryptocurrency craze.

Major media outlets recently reported that the U.S. Securities Exchange Commission (SEC) has issued dozens of subpoenas and information requests to companies, investors and advisers engaged in cryptocurrency-related activities. The SEC's probe follows repeated warnings that many token sales, commonly referred to as initial coin offerings or ICOs, may be violating securities laws. This activity signals the agency's intention to thoroughly scrutinize ICOs.

Regulators are now taking a more active role in investigating not just ICOs but also the companies developing funds or other investment vehicles focused on cryptocurrencies or ICOs. In the sections that follow, we highlight recent enforcement developments targeting the cryptocurrency community and reflect on both the opportunities and challenges that lie ahead.

Before the Storm: Repeated Warnings by Regulators

Through late 2017, one of the world's most popular cryptocurrencies, Bitcoin, experienced a meteoric rise in value of nearly 2,000 percent. However, from late December 2017 through February 2018, more than 60 percent of that value was lost, including a one-day drop of 25 percent on Jan. 16, 2018. Then on January 18, the SEC's Division of Investment Management issued an open letter to two industry associations expressing concerns about “a number of significant investor protection issues” arising from cryptocurrency-related funds, including valuation, liquidity, custody, arbitrage, manipulation and related risks. From Jan. 26, 2018 to Feb. 5, 2018, Bitcoin's value plummeted another 36 percent. As of April 2, 2018, Bitcoin was trading on popular trading platforms around $7,000. This is its lowest price since the beginning of the surge from mid-November of last year.