SEC Rulemaking Is Giving Corporate Finance a New Crypto Hurdle Rate

Corporate finance departments are grappling with a new hurdle when it comes to cryptocurrency: regulatory risk. The Securities and Exchange Commission (SEC) is working to provide clearer guidelines on how to handle digital assets, which could make it easier for companies to assess and manage the risks associated with crypto. This "Regulation Crypto Assets" initiative aims to create a framework for entrepreneurs and market participants to raise capital under federal securities laws, potentially making the regulatory risk of crypto look more definable and calculable.

CFOs, who are accustomed to pricing risk across various financial instruments, now face the challenge of understanding the boundaries of risk in the crypto market, where the rules aren't always clear. The SEC's proposal includes two registration exemptions that would allow for the offering of digital assets up to $5 million over a four-year period and $75 million in a 12-month period.

These exemptions, along with disclosure requirements and a conditional safe harbor, would help businesses determine when a crypto asset would no longer be considered an investment contract. While the exact amount of corporate money that could flow into crypto is uncertain, the real value lies in the potential economic benefits once regulatory clarity is achieved.

CFOs may soon be able to ask, "What conditions would make investing in crypto worthwhile?" rather than starting with "Can we touch this?" This regulatory clarity could reduce barriers to domestic crypto capital formation while maintaining investor protections, and it may ultimately determine whether the industry's utility outweighs its current hurdles.