Why Some Cryptocurrencies Are Only for the Wealthy

Initial coin offerings, which have become the ground floor for investing in cryptocurrencies that hope to soar like Bitcoin, raised almost $6 billion last year. In most cases, the issuer had no product -- only a white paper jam-packed with business ideas -- and said its coins (or tokens) weren’t securities because they’d be used in running whatever venture it was. Regulators didn’t buy that. Some crypto startups are now pitching their digital coins in a different way, by calling them security tokens, ones that can take advantage of exemptions in securities laws.

It’s a virtual unit of currency, much like Bitcoin and its competitors. But where Bitcoin’s often-volatile value is entirely dependent on what its adherents say it is, security tokens are promoted as being tied to actual assets, such as equity in companies, real estate or debt. Crucially, that means issuers of security tokens acknowledge being subject to securities laws, and they design their offerings to fit established exemptions from registration under the Securities Act of 1933.