May 29, 2019

Kik goes to court over crypto debate

Chat app Kik yesterday helped launch a legal battle that could result in greater clarity around whether digital tokens are currencies or securities.

Backstory: Kik in 2017 raised nearly $100 million in an initial coin offering for a token called Kin that would be used to buy and sell digital services. The SEC later reached out for more info and eventually sent Kik a Wells notice that indicates some sort of enforcement action will be forthcoming.

  • In short, Kik wants Kin to be viewed as a currency rather than a security. But, as Kik investor Fred Wilson notes, "the SEC is regulating by enforcement, not new rulemaking."
  • SEC officials previously declared both Bitcoin and Ether to be currencies, although its corp finance director did hint that the initial sale of Ether tokens should likely have been considered securities.

Kik's top argument is that Kin doesn't meet the Howey Test, which was created by the Supreme Court in 1946 to determine if certain transactions (like an ICO) are investment contracts (and, thus securities).

  • It's no slam dunk. Kik argues in its Wells notice response that Kin buyers had no expectations of profits from buying tokens, thus not meeting the Howey Test, but 2017 comments by Kik CEO Ted Livingston tell a different story.

Yesterday Kik launched a crowdfunding effort to take its fight to court, contributing an initial $5 million worth of digital tokens.

  • The crypto industry hope is that judges will decide this currency vs. security questions once and for all, effectively creating an updated Howey Test.
  • And it should be the SEC's hope as well, to both save it headaches and to establish common rules of the digital road.

The bottom line: Kik and other crypto-related startups aren't trying to operate outside of regulatory regimes, despite their industry's lawless reputation. They want specific rules. But, so far, the U.S. government hasn't complied.

Go deeper: The promise of Facebook's GlobalCoin

Go deeper

Scoop: Inside the Trump campaign's big hedge on Facebook

Illustration: Eniola Odetunde/Axios

The Trump campaign has invested most of its advertising budget to date on Facebook, testing thousands of versions of ads per day to maximize its spending.

But behind the scenes, a source familiar with the campaign tells Axios, the thinking has shifted: "As everyone can see, we still have strong spending on Facebook, but the percentage of our total media budget [on Facebook] is shrinking."

Trump's revenge tour has the House in its sights

Illustration: Aïda Amer/Axios. Photo: Saul Loeb/Getty Contributor

In the lead-up to the 2018 midterm elections — buoyed by Republican control of both chambers — President Trump viewed campaigning for the House as a lower-tier priority and instead poured his energy into rallying for the Senate.

But after the GOP reckoning in 2018, and experiencing firsthand how damaging a Democratic-led House has been to him, Trump is now personally invested in helping Republicans regain the majority in November, several people familiar with his thinking tell Axios.

Pelosi warns U.S. allies against working with China's Huawei

Nancy Pelosi, Feb. 16. Photo: Sven Hoppe/picture alliance via Getty Images

House Speaker Nancy Pelosi on Sunday cautioned U.S. allies against allowing Chinese telecommunications giant Huawei to develop their 5G networks, arguing at the Munich Security Conference that doing so is akin to “choosing autocracy over democracy," CNBC reports.

Why it matters: Pelosi's hawkish stance marks a rare area of agreement with the Trump administration, which believes Huawei is a national security threat because the Chinese government may be capable of accessing its equipment for espionage.

Go deeperArrow4 hours ago - World