Regulatory Series on Cryptocurrencies: Does SEC’s Newly Proposed Definition of ‘Accredited Investor’ Have Any Impact on Crypto-Assets?

The SEC has made a proposal to update ‘Accredited Investor Definition to Increase Access to Investments. The proposed update on accredited investor qualifications is likely to attract more investors to cryptocurrency products and relevant services as the commission is seeking to establish the clarity on eligibility of participation into the private capital markets. Precisely, they want to recognize who are institutional and individual investors.

Well, couple of us might ponder over SEC’s stringent approach towards cryptocurrency regulatory approach hasn’t been conducive. However, there are several exemptions the U.S. Securities and Exchange Commission (SEC) offers that allow companies to launch their bitcoin investment products without registration. While waiting for the SEC to approve their bitcoin ETF, some firms have taken advantage of these exemptions to offer an interim product.

Despite efforts by many companies, the SEC still has not approved a bitcoin exchange-traded fund (ETF). The commission has been taking its time to evaluate any proposed rule changes for such a product that have come its way, repeatedly extending the time it takes to make a decision on each.

For now, the press release by US SEC, wherein the chairman says, “the current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth”.

“Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication. I also am pleased that the proposal specifically recognizes that certain organizations, such as tribal governments, should not be restricted from participating in our private capital markets, added Chairman Jay Clayton.”

With this new movement, the grey-shaded area is going to be cleared of an accredited investor that has long been debatable about its clarity on who are the qualified members for this status and would allow more investors to participate in private offerings by adding new categories of natural persons that may qualify as accredited investors based on their professional knowledge, experience. And, hereon, the accredited investors are considered to be the individuals with a net worth greater than $1 million or an annual income of $200,000, or the firms with more than $5 million in AUM. In addition, couples with income of $300,000 or more to be eligible. 

The proposal is kept open for a 60-day public comment period, those who wish to add their commentaries, can use the SEC’s Internet submission form or send an email to [email protected].