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TurnKey Token Gets to Fly: SEC Issues First No-Action Letter for Token Sale

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On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for selling tokens without registration. This guidance is most relevant to token issuers who are focused on commercial utility and record-keeping benefits in a centrally controlled network and are willing to minimize or eliminate the profit elements of the token. The TurnKey No-Action Letter, taken together with the Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) issued by the SEC’s Strategic Hub for Innovation and Financial Technology on the same date, offers guidance for structuring the elements of a private, permissioned, centralized blockchain token and network.[1] 

The SEC staff emphasized the following elements of tokens sold by TKJ (TKJ Tokens) and the associated network in the TurnKey No-Action Letter:

  • No proceeds from token sales are used to develop the network or related software;
  • The network is “fully developed” and operational before tokens are sold;[2]
  • When sold, the tokens are usable for their stated commercial functionality;
  • Tokens cannot be transferred outside of the network;
  • Tokens are sold by the issuer at a stable price throughout network operation;
  • Each token represents an obligation to supply commercial services valued in a stable amount (i.e., the tokens are stablecoins);
  • The issuer only repurchases tokens at a discount to their face value;[3] and
  • Marketing of the tokens emphasizes their functionality, and not potential for increases in market value.

TKJ’s no-action request contains a lengthy description of the proposed network and tokens. These facts may prove significant to the SEC’s evaluation of any subsequently issued tokens seeking to rely upon the TurnKey No-Action Letter. Some features of the TKJ network and token elements that may prove significant to structuring TKJ Tokens and associated networks include:

  • A network that is a permissioned blockchain, where permission is conditioned upon agreement to contractual terms and conditions;
  • Fees for participation in the network are permissible;
  • Distinctions among network users are possible, and may even be required to the extent individual consumers participate;
  • TKJ Tokens allow the continuing active participation of the token issuer without causing the tokens to be securities, addressing a major focus of the Framework;
  • The network operator satisfies applicable know-your-customer/anti-money laundering and sanctions requirements for network participants (in this case, in concert with stricter security and identity requirements for users of on-demand private aviation); and
  • Token marketing materials emphasize the tokens’ consumptive use, and users represent that their purchases are for commercial use.

Of course, some of these may prove less significant than other elements not emphasized above.

Other interesting elements of the TKJ Tokens could prove significant to future responses from the SEC staff. First, the nominal asset underlying the TKJ Tokens is the US dollar, rather than a commodity or company product or service. The Framework seems to contemplate a greater variety of asset pegs, but pegs of commodities, foreign currencies, or in-kind delivery may raise greater concerns of speculative or investment opportunity and may implicate other statutory regimes.[4] Second, TKJ commits to continuous and open-ended sales, which appears to factor heavily in its argument that TKJ tokens would have future price stability. Third, the US dollars underlying the TKJ tokens will be maintained in escrow with banks on a one-to-one ratio, and escrow balances will be subject to independent audit. The escrow arrangement contractually limits TKJ’s discretion over the use of the escrowed funds, but seemingly subjects network participants to risk of contractual breach by TKJ, and the escrowed amounts to the risk of claims by TKJ’s creditors.[5] Finally, TKJ committed to offer no rebate, reward, bonus, or similar program. This commitment creates greater restrictions than are sometimes observed for prepaid and stored value programs.

As a product of the SEC, the TurnKey No-Action Letter does not address potential issues associated with other applicable regulatory frameworks. For example, the creation and maintenance of a centralized, permissioned blockchain operating in whole or substantial part within the United States may trigger US anti-money laundering (AML) regulations administered by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) applicable to Money Services Businesses (MSBs). Notably, administrators and exchangers of convertible virtual currency could be viewed as a type of MSB known as a money transmitter.[6] Additionally, use of fiat currency to purchase a digital token of this type may be subject to rules about acting as a provider or seller of prepaid access, a different type of MSB. However, the regulations contain a number of potential exemptions or limitations, which centralized, permissioned blockchain creators may be able to avail themselves of in certain scenarios. Such activity may also trigger money transmitter laws at the state-level, depending on the particular facts and circumstances.

The TurnKey No-Action Letter appears to provide a path for issuing stablecoins with potential widespread applicability as an alternative to stored value and prepaid programs without registration as securities. TKJ Tokens may provide their issuers with the following benefits, among others:

  • Prepayments for products or services that provide positive cashflow (i.e., “float”);
  • Avoidance of wire, credit card, and other intermediary fees;
  • Avoidance of foreign exchange translation costs;
  • Interest income on escrowed balances supporting token redemption obligations;
  • GAAP income as fulfillment obligations are written-off for non-redemption;
  • Records management efficiencies from blockchain recordkeeping;
  • Transaction settlement and auditing efficiencies from blockchain recordation speed, immutability, and multiplicity;
  • Processing of transactions outside of normal banking hours; and
  • Smart contract implementation that may lead to reduced personnel costs and fewer commercial disputes.

On the other hand, the path represented by the TurnKey No-Action Letter may not be attractive to other types of start-up businesses and protocol developers, in particular, those intending to create protocols or networks with decentralized management and governance decision-making. In sum, the TurnKey No-Action Letter brings welcome clarity to one type of token offering—i.e., a token issued in conjunction with a developed private, permissioned, centralized blockchain network—but the Framework and guidance from other regulatory agencies is needed to understand the broader landscape of token offerings.

[1] The TurnKey No-action letter and Framework are expressions of staff views and are not binding upon the SEC. Further, the TurnKey No-action Letter is not formally applicable to any issuer other than TKJ. Nevertheless, no-action letters and staff bulletins reflect substantial deliberation by the SEC staff and in practice are often highly influential on the SEC. We therefore believe that the TurnKey No-Action Letter and Framework provide important guidance to future token issuers.

[2] While the operational element would seem to be satisfied by a network that has reached the minimum viable product stage, it is not clear whether full development is intended to represent some later stage of development.

[3] It appears that redemptions (i.e., “burns”) of tokens in exchange for the underlying value can be made at par, at least to commercial users.

[4] See additional insight from Steptoe on the Framework here.

[5] It is possible that further measures of security could affect the determination of TKJ’s counsel that the tokens are not notes under the Reves test. Reves v. Ernst & Young, 494 U.S. 56 (1990). However, the SEC staff’s response in the TurnKey No-Action Letter makes no mention of this issue.

[6] These regulations generally apply to the creation and issuance of tokens constituting convertible virtual currency, but may also be triggered by engaging in other activities that could be viewed as the administration or exchange of such tokens or currency.

Source: https://www.steptoeblockchainblog.com/2019/04/turnkey-token-gets-to-fly-sec-issues-first-no-action-letter-for-token-sale/

Blockchain

Bitcoin Price Has Only Ever Spent 93 Days Above $11,500

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With Bitcoin’s price hovering around $11,500, recent data indicated that the asset had spent only about three months of its existence above that particular level.

BTC: Only Three Months Above $11.5K

The official launch of the first-ever cryptocurrency came in early January 2009. Born during the last massive financial crisis, Bitcoin was this “magical money” that actually lacked any significant attention in its initial years. Consequently, its price traded close to zero for a while.

Since then, however, Bitcoin started gaining traction that ultimately resulted in severe volatility throughout the years. The massive fluctuations took the asset towards an all-time high in December 2017 of nearly $20,000, and just a year later, BTC saw its price beneath $4,000.

Fast-forwarding two years and Bitcoin is currently positioned around $11,500. Although this level is nearly twice as less as the all-time high, recent data from the analytics company Skew informed that BTC hadn’t spent a lot of time above $11,500.

Historical Performance Bitcoin Price. Source: Skew
Historical Performance Bitcoin Price. Source: Skew

More precisely, BTC’s price has hovered above $11,500 for only 93 days (or three months) since January 2009.

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Fundamentals in Place

Apart from the data above, Bitcoin’s hash rate has experienced a significant boost even after the completion of the third halving in May. As CryptoPotato reported recently, the metric measuring the computing power miners use to validate transactions on the BTC blockchain reached a new all-time high of 170 exahashes per second. This represented a 40% increase in the five months following the halving.

Although the hash rate is not correlated with the price, another report suggested an upcoming price increase. By indicating that Bitcoin whales, meaning entities with at least 1,000 coins, have slowed down accumulation, Glassnode asserted that this could ultimately be a bullish sign for the asset price.

Historically, once whales have stopped buying massive quantities, this has led to an opportunity for retail investors. According to the analytics company, Bitcoin may be in the “beginning of a run-up to a market top.”

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Source: https://cryptopotato.com/bitcoin-price-has-only-ever-spent-93-days-above-11500/

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US Fed Chair Jerome Powell Says It’s Better to Be Right Than First on CBDC

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  • US Fed Chair Powell believes that the United States should focus on getting right the development of a central bank digital currency (CBDC), rather than attempt to be first.
  • While speaking on a panel hosted by the International Monetary Fund (IMF), Powell reassured that the US is “committed to carefully and thoughtfully evaluating the potential costs and benefits of a CBDC for the US economy and payments system.”
  • Although Powell admitted that the digital currency has the potential to improve the current payments system, he claimed that the Fed hadn’t made a final decision on launching its own.
  • Reports from earlier this year suggested that the Federal Reserve had started experimenting with a hypothetical digital currency.
  • Nevertheless, today’s speech showcased that the US central bank is still unconvinced by that idea. In contrast, the other global superpower China has been making serious improvements on the matter. 
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  • CryptoPotato reported earlier today that China had taken the CBDC tests to its citizens by airdropping $1.5 million worth of the digital yuan and urging them to buy goods. However, the initial results weren’t promising as users said it didn’t offer anything groundbreaking. 

Featured Image Courtesy Of CNBC

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Source: https://cryptopotato.com/us-fed-chair-jerome-powell-says-its-better-to-be-right-than-first-on-cbdc/

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Bitcoin Price Eyes $12,000 Following US Fed Chair Powell Talks

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  • Bitcoin’s price finally made a worthwhile move after surging to $11,840 on Bitstamp following days of stagnation.
btcusdh_chart
BTC/USD. Source: TradingView
  • The price has since retraced a bit to trade at its current level of around $11,780. Nevertheless, this is a move in the right direction as concerns started crippling up that we might be in for a fill of the CME gap down at $11,100.
  • Bitcoin is trading approximately only $700 away from the $12,500 area – the 2020 highest level that was reached on August 17. The next major resistance for BTC now lies at $12,000 – $12,100.
  • The move came soon after the Chairman of the US Federal Reserve, Jerome Powell, spoke on a panel hosted by the International Monetary Fund (IMF).
  • During the event, he said that the US is “committed to carefully and thoughtfully evaluating the potential costs and benefits of a CBDC (Centra Bank Digital Currency) for the US economy and payments system.”
  • He also said that it’s better to be right than be first on CBDCs.
  • Interestingly enough, BTC’s move appears to be uncorrelated to the US stock market. At the time of this writing, the S&P 500 is down about 0.4%, while the Dow Jones Industrial Average (DJI) is down about 0.3%.
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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.


Source: https://cryptopotato.com/bitcoin-price-eyes-12000-following-us-fed-chair-powell-talks/

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