British Columbia's securities watchdog says it doesn't consider the tokens underlying the collectible, blockchain-based virtual cats created by CryptoKitties to be securities.
That means the province's securities legislation does not apply to the sale of the cryptographic cats created by Vancouver-based tech startup Axiom Zen.
The news comes as regulators around the world grapple with balancing investor protection and technological innovation. In the United States, Treasury Secretary Steven Mnuchin has brought together federal government agencies to co-ordinate efforts to regulate cryptocurrencies. The heads of the Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission have both addressed a Senate hearing on the topic.
Regulators in South Korea, China, Russia and India have also expressed concerns about cryptocurrencies, which soared in value last year before plunging dramatically in 2018.
The Canadian Securities Administrators has said it will determine on a case-by-case basis whether a digital token or coin constitutes a security.
In the case of CryptoKitties, a virtual game intended to familiarize users with blockchain technology, the BC Securities Commission said in an e-mail Thursday that the tokens, as described to them, do not have the characteristics of securities.
However, the agency added that the decision applies only to the sale of CryptoKitties tokens and not to other aspects of Axiom Zen's operations, which were not the subject of its deliberations.
Bryce Bladon, a CryptoKitties co-founder and director of communications at Axiom Zen, said he's encouraged that the regulator is taking a nuanced approach to governing the nascent blockchain industry.
"The public perception is that any sort of crypto project is a cryptocurrency, and that's simply not accurate," Mr. Bladon said. "That's something we tried to showcase with CryptoKitties."
CryptoKitties is designed to be a collectibles game as opposed to a currency. Its creators built it to help drive the adoption of blockchain by making the emerging technology more accessible.
The so-called "cryptocollectibles" are priced in the digital currency ether, and transactions are recorded in an unalterable digital ledger. Each cryptokitty possesses a unique digital genome. The cost varies from one cryptokitty to the next – on average, they fetch roughly $91, although a number of rare cats have sold for more than $100,000 each.
The virtual cats can also be bred, with an algorithm determining the new kitten's genome and appearance.
Mr. Bladon said the CryptoKitties team has been working with the province's regulators from the start to ensure that the project did not run afoul of securities laws, and the decision is the result of months of meetings. However, Mr. Bladon noted that it does not imply that the regulator endorses the CryptoKitties project.
Welcome, dear average American, to the lovely world of unregulated retail finance. Perhaps you're young enough that you missed the tech-stock housing bubbles. Perhaps you didn't have enough cash to "flip that house" back in 2006. Well, thanks to the invention of cryptocurrency, there's a whole new way for you to lose your life's savings.