Cryptocurrency firms are also starting to raise money under the SEC's crowdfunding rules, which allow companies to solicit funds more broadly subject to a $50 million cap and additional disclosures, said Nimish Patel, partner at Mitchell Silberberg & Knupp.
"That's the middle ground that people are going for now."
Regulatory Chill
The value of funds raised globally by digital coin offerings in January and February fell 43 percent to $726 million compared with November and December when bitcoin, the best known cryptocurrency, hit an all-time high just below $20,000, according to data from research firm Novum Insights.
Silicon Valley-based start-up Stream decided last month to shelve its planned ICO due to regulatory uncertainty, Simar Mangat, Stream's chief executive, told Reuters.
"If the SEC were to rule all tokens as securities, it'd be a huge blow to innovation in the crypto ecosystem here in the U.S," he added.
Some companies are shunning U.S. investors altogether in order to avoid U.S. securities law, which generally focuses on where investors are from rather than where the company is based.
Executives at Estonia-based iOlite, Scotland-based CaskCoin, UK-based Celsius Network, and Auctus, told Reuters they were barring U.S. citizens to steer clear of the SEC.
"Auctus will not sell tokens to the residents of the U.S. due to various regulatory issues," said Daniel Duarte, the Brazil-based co-founder of Auctus, which is launching its ICO this month.
iOlite believes its token is not a security, but decided to bar U.S. investors after recent discussions with U.S. legal counsel, said CEO Alfred Shaffir.