What SEC’s Redefinition of ‘Accredited Investors’ Mean for Cryptos

The SEC has adopted amendments to the definition of “accredited investors” to: add new categories of investors (both for individuals and entities) to participate in the private capital markets. But what does the change mean for cryptocurrencies?

August 30, 2020 | AtoZ MarketsThe Securities and Exchange Commission has amended its definition of an “accredited investor” — one of the principal tests for determining who is eligible to participate in U.S. private capital markets.

SEC’s definition of accredited investor opened the door to access to private financial markets

Until now, investors were deemed accredited by the SEC if they had a net worth of more than $1 million, an annual income of more than $200,000 or they met certain legal requirements. This opened the door to access to private financial markets that the broader public was excluded from.

For the first time, individuals will be able to participate “in our private capital markets not only based on their income or net worth but also based on established, clear measures of financial sophistication,” SEC Chairman Jay Clayton said in a press release.

The SEC amendments allow investors to qualify as accredited “based on defined measures of professional knowledge, experience, or certifications in addition to the existing tests for income or net worth,” Clayton said.

What this means for cryptocurrencies

The SEC oversees regulated cryptocurrency token offerings in the U.S. and has cracked down on unregulated offerings as illegal securities sales. The amendment will help grow the pool of Americans who can be in compliance when investing in cryptocurrencies along with providing diversification of one’s portfolio.

This is a significant move for Bitcoin and crypto enthusiasts as much of the regulated space like Grayscale Trust Funds, Bakkt, and so on are limited to accredited and institutional investors. The new law introduces changes to the sections Rule 501(a), Rule 215, and Rule 144A of the Securities.
I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings,” Clayton said.
With these amendments, the easing will foresee greater adoption of regulated crypto products. Commenting on the matter, Jacob Franek, the co-founder of data analytics firm, Coinmetrics said:
Have to imagine that crypto was an accelerant to this.”
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