VC partner: Outcome of Kik SEC battle is "pivotal for crypto regulation"

08 Feb, 2019 | Updated: 08 Feb, 2019
by Will Heasman
Regulation
VC partner: Outcome of Kik SEC battle is pivotal for crypto regulation

The SEC has clamped down hard on ICOs since their popular emergence, tarring many with the same brush, dooming them to security status and buckling many under the weight of what that stands for. Now it appears that one company is fighting against its designation, and likely fallout may be exactly what crypto regulation needs…

The Canadian messaging app, Kik recently decided to kick back (pun intended) at the SEC following the security classification of Kik’s native token, Kin.

According to the founder of Kik, Kin is a currency and therefore couldn’t possibly be declared “an unregistered security,” adding that “Kik and the Kin Foundation are prepared to litigate” if the SEC chooses to enforce their decision.

However, litigation may be exactly what the cryptocurrency space needs in order to set a precedent for future circumstances.

This belief is echoed by Chris Burniske, a partner at venture firm placeholder VC, who recently tweeted that a fight with the SEC would be “pivotal for crypto regulation in the US”

Burniske posits that the SEC could run a risk of losing if taken to court, as to whether or not Kin classifies as a security is seemingly cut and dry.

According to the Securities Exchange Act of 1934, the definition of a security does not include currency; the very crux of Kik’s argument.

Burniskie hypothesises a settlement, adding that such a outcome would create a precedent under which many ICO utility tokens would fall:

The Howey test:

In order to define a security, the SEC uses the Howey test, which stipulates a four-factor criteria that an asset must meet before official classification. Factors are as follows:

-  It must be an investment of money

-  With an expectation of profit

-  In a common enterprise

-  With the profit to be generated by a third party.

The SEC could very well argue that Kin fulfills these criteria; however, the base argument that Kin is a currency may possibly be enough to tip the case in favor of Kik, resulting either in the SEC deciding not to pursue enforcement, or withdrawing security classification altogether.

Read more: Kik is going to court against SEC decision on their ICO

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