The Securities and Exchange Commission clamped down on cryptocurrency firms last week in a major way.

The regulatory body issued dozens of subpoenas (some groups estimate more than one hundred) to companies that conducted or advised on initial coin offerings (ICOs).

Notes readers aren't surprised, as I've long warned that the scammy ICO market is one of the biggest bubbles I've ever seen.

Before discussing the fraudulent nature of the space, a bit of background on ICOs…

A lot of people view ICOs as an asset class like stocks, bonds or real estate. But that couldn't be further from the truth.

Initial coin offerings are simply a funding scheme. Companies looking to raise money will post a white paper on a website, post some pictures of their "C-suite executives," and set up a Twitter account… that's basically it.

The goal is to raise funds by issuing "tokens." These tokens typically serve as pre-paid credits that can be used within the ecosystem of the company raising the funds. In other words, you're not actually getting equity in the company… you're buying a gift card.

Think of it like the in-game credits you would buy (with real money) to get ahead in the old Facebook game, Farmville. Outside of Farmville, those credits are worthless.

With almost no information, and the obvious, inherent risks to buying a prepaid service, investors are supposed to evaluate if there's a valid, secondary market for these tokens.