Introduction.

In April, 2019, the U.S. Securities and Exchange Commission website specialized in innovation and financing technology, FinHub ( https://www.sec.gov/finhub), published a brief guide to determine the need to file before the SEC, operations related to cryptocurrencies, such as the offer, sale, distribution, marketing, promotion, trade, market establishment, holding, custody, financing services and, in particular, initial coin offerings (ICO). FinHub's analysis is of interest, given the lack of specific regulations, not only in the USA, but in the world in general and in Argentina in particular.

Public offer of cryptocurrency in Argentina. Regulation.

Except for generalized statements or tangential mentions, there are no regulations in Argentina regarding cryptocurrency related transactions, including the most interesting ones such as: mass media advertising (e.g. Internet, TV or print media), custody (by means of virtual wallets such as Ripio or Bitex) and trading, whether directly in international markets (e.g. Huobi, Bittrex, Binance), through brokers (e.g. Ripio), or peer-to-peer (e.g. localbitcoins). In Argentina, reference is made to cryptocurrency by the Unidad de Información Financiera (UIF) (Financial Information Unit) which states that such operations must always be reported (ROS)- and by the Banco Central de la República Argentina (Central Bank of Argentina) which warns about the risks involved in cryptocurrency transactions.

As for the Comisión Nacional de Valores (CNV) (National Securities Commission), this body issued a statement with a brief explanation on ICOs, blockchains and, in particular, the risks that come with them, such as the lack of specific regulation, the price volatility and lack of liquid assets, potential fraud, inadequate access to relevant information, early-stage project financing, technological and infrastructure failure and the transnational nature of transactions involving ICOs. Finally, the CNV indicated although there is no specific regulation on ICOs, upon a specific request, it might consider the relevance of granting an authorization to make a public offer.

The CNV did not address, however, its competence - or lack of - in the matter dealt with by Capital Market Law No. 26,831. Traditionally, the CNV is the enforcement authority exclusively in matters of public offering of negotiable securities, and are excluded from the invitations made to the general public to transact any other type of goods. Therefore, the core of the analysis would be the determination of whether cryptocurrencies, or " investment contracts" or " digital assets" -as FinHub calls them-, constitute securities, since this would be the only case in which they might be subject to regulation by our regulatory entity.

As seen below, FinHub evaluates the digital assets with the purpose of determining whether they constitute " investment contracts" and, consequently, " securities". If this is the case, the US federal securities laws will apply to them, and they must be filed before the SEC.

FinHub evaluation.

The paper issued by FinHub focuses on the doctrine of the "Howey" case resolved by the Supreme Court of Justice of the United States, under which it was established that an investment contract exists when there is an " investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others". The Howey Test includes an analysis of the terms and form of the instrument, as well as the circumstances surrounding the digital asset and how it is offered in the primary or secondary market.

The first requirement, the " investment of money", would be met in the case of digital assets since in all cases they are exchanged for money or equivalent values.

FinHub considers that it also complies with the second requirement, since a " common enterprise" typically exists in the case of digital assets.

On the other hand, according to FinHub, the third element, " reasonable expectation of profits to be derived from the efforts of others" is the key to determining the result of the Howey Test. In regards to the existence of " the efforts of others", these will be verified in the following cases: (1) in the existence of a network in development, (2) in the interference of the developer or sponsor in decisions regarding the asset, such as the market where it will be offered, (3) in the retention of a stake or interest in the digital asset by the sponsor, (4) in the awarding of the asset to management as compensation, (5) in the sponsor's ownership or control of the asset's intellectual property rights, (6) in the asset monetization by the sponsor, especially when it has limited functionality, and in general (7) when the sponsor's efforts are important to the value of the digital asset.

Finally, the existence or non-existence of an " investment contract" will also depend on whether or not there is a " reasonable expectation of profit". In this sense, FinHub considers that, to the extent that the following elements -among others- are present, the more likely it is that there is a reasonable expectation of profit: (1) appreciation of the value as a consequence of the asset's development or promotion, (2) right to receive dividends, (3) transferability of the asset and existence of a secondary market, (4) significant volume and liquidity of the market, (5) possibility of using the asset to acquire the sponsor's goods and services, and (6) oversubscribed initial offering.

FinHub's analysis, however, exempts from the Howey Text those assets with fully developed and operational networks, with built-in functionalities, or that can be used without having to be converted or redeemed in a specific platform.

Conclusions.

FinHub recognizes that the determination of whether new financial instrument -including a digital asset- constitutes a security, requires a case-by-case analysis of its nature and of how it is offered and sold.

Although they have been around for few years, operations with cryptocurrencies are still novel, and are in constant growth. Consequently, although up to now, there is no specific regulation in Argentina applicable to cryptocurrencies, it is not ruled out that at some point in the near future, some or all of them will be considered as securities according to the Howey Test parameters, and they will then be regulated.