The CVM board confirmed on January 30, 2018, a decision rendered by its technical department (Superintendência de Registro de Valores Mobiliários - SRE) in the sense that the cryptocurrency Niobium Coin should not be characterized as a security. This confirms the understanding that the initial offering of the Niobium Coin (Initial Coin Offering - ICO) is not within the CVM’s scope of jurisdiction and, therefore, does not require registration of the issuer and offering with the local authority.
CVM concluded that the Niobium Coin should not be treated as a security since the acquirers of the cryptocurrency would not receive any type of compensation from a third party, considering the provisions of item IX, article 2, of Law No. 6,385/76 ("when offered publicly, any other securities or collective investment contracts that generate the right to participation, partnership, or compensation, including as a result of the provision of services, whose income comes from the efforts of the entrepreneur or third parties").
Named a utility token, Niobium Coin can be purchased only through bitcoins or ethereums and there is no right to compensation for its purchasers (one of the criteria necessary to be characterized as a security), even if there is an expectation of profit (in the secondary market). Holders of this asset may use it only to pay for services purchased on the cryptocurrency trading platform of the São Paulo Digital Corporate Currencies Exchange (Bolsa de Moedas Digitais Empresariais de São Paulo – Bomesp), when it is developed and implemented.
Confirmation of the understanding of the technical area by the CVM board is very interesting, as it opens space for new initial offers of cryptocurrencies in Brazil and serves as a reference for the market. However, it is important to make it clear that any ICO of these assets, when characterized as securities, may be followed by various undesirable legal consequences, such as criminal punishment of those responsible for the issuance.
The decision has no other precedents in the world and shows that CVM is following the development and application of new technologies in the capital market. It remains to be seen whether, like equity crowdfunding, new rules and mechanisms will be created in order to enable public offers of cryptoassets that are characterized as securities (such as equity tokens).
Regardless of the current discussions on cryptocurrencies in the Chamber of Deputies (Bill No. 2.303/2015), there is no doubt that the technology behind ICOs can transform the way funds are raised in Brazil, bringing various benefits to the capital market. However, it is necessary to establish clear and effective rules for securities to be offered publicly with the necessary protection for investors (and, of course, without restricting the use of innovative technologies).
1. Under the terms of Law No. 7,492 (White Collar Law), the penalty may be confinement of 2 to 8 years and a fine.