Despite S.E.C. Warning, Wave of Initial Coin Offerings Grows

In contrast, only three projects have said they are canceling or postponing the sale of coins because of the warning.

July was the biggest month for coin offerings, with 34 projects raising $665 million, data shows — or twice as much money as was raised in the first five months of the year combined.

For investors, the most immediate risk is less likely to be the regulators, and more likely to be the many projects that are proceeding without a credible plan for putting out successful software — something that many sophisticated investors have warned about. Many coin offerings have also had security vulnerabilities that have led to big losses for investors.

But even projects that build successful software could be punished if the commission carries through with its warning.

The agency said that it would focus on coins that should be categorized as securities. People selling securities to American investors are generally required to register themselves and their investments with the securities regulator. So far, almost none of the coins being sold to investors have been registered with regulators.

Many entrepreneurs creating virtual currencies have argued that they are not securities because they are intended to be used as the internal method of payment in the software that the entrepreneurs are creating.

The DMarket token, for instance, is expected to be used to pay for video game points and products on a new marketplace being built by the token’s creators, and those creators have said that they do not consider it a security.

But many lawyers in the industry have been warning entrepreneurs that just because a coin is intended to serve as a payment method does not mean that it cannot also be categorized as a security.

Nick Morgan, formerly a lawyer in the S.E.C.’s enforcement division, said that the security label was likely to apply to any coin that an investor buys with the expectation that it will increase in value as a result of the efforts of the entrepreneurs who created it.

That definition could be a problem for many coins because the excitement around initial coin offerings has been driven almost entirely by investors who have bought coins in the hope that they will become more valuable over time as the underlying software is improved.

The values of many coins introduced in the last year have skyrocketed as speculators have entered the market.

Mr. Morgan, now a defense lawyer at Paul…

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