Can an issuer in a securities offering permit investors to remit payment via Bitcoin (BTC) or Ethereum (ETH)?

No…but Yes.

This came up last week from one of our escrow customers Reg A’s, which is underwritten by a broker-dealer. They had mistakenly included language in their disclosures saying they were accepting BTC and ETH into escrow, so naturally the SEC and FINRA had questions about how that was possible given price volatility, settlement issues, problems in calculating final subscription amounts, and with calculating minimums (and maximums) to meet escrow closing requirements.

Can an issuer accept BTC or ETH directly into escrow?

Sure, as long as it’s disclosed. But it presents some rather large issues from a regulatory perspective, as mentioned above. It’s really better if the issuer only accept USD into escrow.

Can an investor use BTC or ETH to invest in an offering that only accepts USD into escrow?

Sure. Easy.

Here’s how an investor can use non-USD assets to invest in a Reg A, Reg D, Reg S or other securities offering, or anything else for that matter (e.g. real estate);

They need to send funds to escrow, which only accepts USD;
  • If the investor wants to use shares of Apple stock that they own, they need someone to convert it to USD and have it sent to escrow;
  • If the investor wants to use real estate that they own, they need someone to give them USD for it and have it sent to escrow;
  • If the investor wants to use Euros that they own, they need someone to convert it to USD and have it sent to escrow;
  • If the investor wants to use Bitcoin or Ethereum, they need someone to convert it to USD and have it sent to escrow;
  • If the investor wants to take out a loan, they need to get that done however they can (credit card, real estate mortgage, etc) and have USD sent to escrow.
The issuer participates in NONE of the above. It only accepts USD into escrow. How the investor ultimately gets the money there is frankly none of the issuers business.
Prime Trust provides numerous services. We are escrow agent for thousands of securities offerings. We are escrow agent for other things. We are trustee of assets. We provide various types of custodial accounts (e.g. self-directed custody, IRA, HSA, college savings, asset protection trust, etc) and hold cash, stocks, bonds, private business interests, real estate, digital assets (BTC, ETH, ERC20, et al) and other things on account for customers. We process and hold USD. We handle foreign currency. We handle and hold cryptocurrency. We have a very serious BSA program for KYC and AML.
Converting BTC and ETH into USD is one of the services we perform as an accommodation to customers. We are not an exchange, we execute buy and sell orders from customers on various exchanges we have relationships with (e.g. Cumberland, BITREX, etc) just as we would use a broker-dealer to execute buy/sell orders for a customer’s shares of Apple stock that we might hold in custody. Customers send us the crypto, which we then hold in custody, and from there can put in cold storage or convert part or all of it to USD, which we will then forward to issuers escrow on their behalf. The issuer receives and books the USD for the investment, and has zero market risk or complications, enabling escrow to operate smoothly and close cleanly.

So, should an issuer include in their disclosures that they are accepting payment from investors in the form of Bitcoin, Apple stock, Euros, or Pieces of Eight?

        …No, absolutely not.

Can investors use non-USD assets like these to make investments in securities offerings?

        …Sure, they just need to convert to USD and then send funds into escrow.
Author Scott Purcell

Scott Purcell is the CEO and Chief Trust Officer of Prime Trust, the blockchain-driven trust company. His firm provides trustee, custody, escrow, AML, KYC, payment processing, accounting, and compliance for numerous stablecoins, exchanges, platforms, broker-dealers, investment advisers, portals and others who are building business that are changing the world.