Crowdfunding a Cryptocurrency Exchange

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Cryptocurrency exchanges have started to raise money under the SEC's crowdfunding rules. The US crowdfunding law states that the exchange of cryptocurrency helps to increase up to $50 million with different disclosures. Moreover, the solicitation rules for a crowdfunding campaign provide more room to maneuver than a Reg D offering. Here you will get a proper explanation to raise money for a cryptocurrency exchange through a crowdfunding offering.

You will get to two types of Crowdfunding, which are permitted under the SEC rules.

The one type of crowdfunding limitation is up to $1 million mainly focused on small businesses. The second allows you to raise up to $50 million and is being used by cryptocurrency exchanges in 2018.

In 2018, cryptocurrency exchanges are putting the focus on the $50 million crowdfunding exemption, sometimes known as a 'mini IPO.The basic regulations for a $1million crowdfunding campaign along with a $50 crowdfunding campaign for the cryptocurrency exchange.

Section 4(a)(6) of the Securities Act, - The Crowdfunding Exemption

Offers of securities to the public (which includes offers made over the internet) should be registered with the SEC under the Securities Act of 1933 until an exclusion from registration is available. In 2018, all the ICOs are considered security offerings by the SEC.

The JOBS ACT added a new exemption to the Securities Act, Section 4(a)(6), commonly referred to as the $1 million crowdfunding exemption.

Small crowdfunding helps you to increase $1 million within 12 months without any registration process. This exception will help you to expand small amounts which mainly come from different investors.

The million-dollar exemption can be combined with the available exemption or offering. So, you will be able to raise a seed round of $1 million beneath the crowdfunding exemption and then a customary Reg D offering of any size.

  • An investor is limited in the money he or she may invest in a crowdfunding offering at any time between the 12 months.
  • If the annual income or the net worth of the investor is less than $100,000, the investor is edged to 10% to the greater of $2,000 or 5% of the lesser the person's annual income or net worth.

If the annual income and net worth of the investors are more than $100,000, the investor is limited to 10% of the lesser of his or her annual income or net worth, to a maximum of $100,000.

This means that anyone, no matter their net worth, is allowed to invest in these offerings. What is limited is the money that they can invest. However, you can market this to accredited investors as well as others.

Many business corporations of the US or US territory offered such a small amount of crowdfunding. Therefore, the offering can be made by a corporation in Puerto Rico using one of these island’s tax incentive programs.

Regulation A Crowdfunding or Mini IPO

Regulation A has been divided into two tires: The Tier 1 offerings are till $20 million in 12 months and Tier 2 offerings of $50 million in 12 months. The investor of $20 million or less than it is taken under either on Tier 1 or on Tier 2.

The issuers of Tier 2 need to provide audited financial statements in their offering documents and to file annual, semiannual, and current reports with the Commission on an ongoing basis. In addition, investor protections are more strict under the Mini IPO than the small crowdfunding exemption. Regulation A+ only helps investors to invest 10 % of the greater of their yearly income or net worth in these securities. The SEC has also implemented other strong investor protections like background checks on the companies that offer securities, along with disclosure of the financial data of the company as a part of the offering.

This implies that purchasers in Tier 2 offerings need to be either accredited investors because that term is explained in Rule 501(a) of Regulation D or they are limited to the 10% limit above. You will be allowed to "test the waters" under Reg A. You might solicit interest in an effective offering from the general public either before or after the filing of the offering statement with the SEC, so long as your matters involve the appropriate disclosure and statements.

Generally, the Tier 1 issuers file the SEC once after every sale. Tier 2 issuers should file annual and semiannual reports, along with the current reports and, in some specific situations, an exit report on Form 1-Z with the Commission.

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