The U.S. Securities and Exchange Commission sets certain standards that individuals and entities must meet before they can become accredited investors. But what exactly is an accredited investor and how do they factor into the world of cryptocurrency?
The SEC Defines Accredited Investors
In Rule 501 of Regulation D of the Securities Act of 1933, the Securities and Exchange Commission outlines the conditions that people or entities must meet to be considered an accredited investor. These conditions exist because in the wake of the 1929 stock market crash and the resulting Great Depression, the SEC needed a method to distinguish those entities with a certain amount of risk tolerance who can protect their own interests in potentially high risk investments.
An accredited investor can include a financial institution like a bank, non-profits or private business development companies that meet the threshold of total assets. Individuals can also become accredited investors if their net worth exceeds a certain threshold. Those with a trust that contains certain assets can also meet the accredited investor criteria. By meeting these standards, accredited investors have essentially been vetted as verifiably qualified to invest in certain offering types. Definitions vary by country, with the US setting out the following qualifications for individual accredited investors:
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