The U.S. Securities and Exchange Commission is turning up the heat on its promise to apply securities laws to everything relating to cryptocurrency.
The SEC’s primary concern is protecting investors and preventing fraudulent and manipulative trading practices. The agency views cryptocurrency as a “security” -- just like any stock, bond, or debenture -- and mandates that any exchange platform dealing with the new digital cash needs to register with the SEC as a national securities exchange or be exempt from registration.
Many of the unregistered platforms give investors the power to buy and sell digital assets hastily. While some of these platforms claim to use strict guidelines, the SEC believes many of those so-called standards are out of sync with the integrity of the listing standards that national securities exchanges have to subscribe to.
SEC urges caution to protect investors
Cryptocurrency has been quite a temptress for the daring investor, and everybody seems to know somebody else who’s got a fantastic crypto story to tell. The SEC hears those stories, too, but it’s also in a position to objectively separate the ripe from the rip-off. To anyone who wants to trade digital assets online, the SEC thinks there are 13 questions you should ask.
Do you trade securities on this platform? If so, is the platform registered as a national securities exchange?
Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC?
Is there information in FINRA's BrokerCheck about any individuals or firms operating the platform?
How does the platform select digital assets for trading?
Who can trade on the platform?
What are the trading protocols?
How are prices set on the platform?
Are platform users treated equally?
What are the platform's fees?
How does the platform safeguard users' trading and personally identifying information?
What are the platform's protections against cybersecurity threats, such as hacking or intrusions?
What other services does the platform provide? Is the platform registered with the SEC for these services?
Does the platform hold users' assets? If so, how are these assets safeguarded?
“We encourage market participants who are employing new technologies to develop trading platforms to consult with legal counsel to aid in their analysis of federal securities law issues,” the SEC advised in a statement on the matter. The agency said that consumers who have questions should reach out to the SEC at FinTech@sec.gov.
BitCoin feels the pinch immediately
On news that the SEC would be insisting on proper registration for digital platforms, the mother of all cryptocurrencies -- Bitcoin -- dropped sharply. The value of the digital asset fell as much as 13 percent before the end of the trading day on Wednesday to finish at $9,856, according to CoinDesk.
It was only a month ago that the cryptocurrency world was in panic mode when Bitcoin fell hard and fast from its December high of near $20,000 to under $6,000.
A Harvard economics professor predicts regulation will trigger a falloff for Bitcoin. Kenneth Rogoff, the International Monetary Fund’s (IMF) former chief economist, told CNBC. “I would see $100 as being a lot more likely than $100,000 10 years from now.”