Bitcoin and Other Cryptocurrencies Fall Once Again As The SEC Looks to Apply Securities Laws to Exchanges
Yesterday was another eventful day in the world of cryptocurrencies. Bad news hits the web, and everything comes tumbling down. So what happened this time? You guessed it – more regulation.
According to an SEC statement, “If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
Basically, it seems like the SEC has finally classified most cryptocurrencies as securities. The statement went on to discuss the issues surrounding investor expectations with cryptocurrency exchanges.
The SEC staff is concerned “that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.”
So, what does this mean for traders?
The SEC hasn’t pointed any fingers, yet.
While the SEC has made it clear they’re drawing the line in the sand, we aren’t sure which tokens they’re specifically targeting. Many analysts think the crackdown will focus primarily on alternative coins or altcoins. These new digital coins often hit the market through a fundraising mechanism called an Initial Coin Offering or ICO.
Like an IPO, an ICO allows a company to raise funds by selling their tokens to investors at a certain price. Overtime these tokens may increase in value, and the investors can often trade these tokens on an exchange for profit. Sounds like a security right? The short answer is yes, but I’m not yet convinced this is what’s sparking the controversy.
The Commissions wants to keep investors safe.
At the end of the day the SEC wants to keep investors safe. One of the biggest problem with ICOs is the slue of fraudulent activity that’s associated with them. Over the past several months, fraudulent ICOs promoted themselves and attracted hundreds of millions of dollars globally. Once the money is raised, they disappear and the investor is left with nothing.
Since ICOs are unregulated, the SEC can do close to nothing to protect an investor. As you can imagine, they feel the need to act fast on this. The solution? As mentioned above, the commission is proposing that all cryptocurrency exchanges must register with the SEC and comply by their rules.
What does this mean for cryptos?
Now for the big question, what does this mean for cryptocurrencies? The whole revolution began with the idea of creating decentralized, and unregulated currencies. Now we’re talking about classifying them as securities and slapping on heavy regulations? What gives?
In my opinion, this is good for the crypto landscape in the long run. If we truly want cryptocurrencies to be adopted, they need to comply with governments. I’m not saying they need to be governed by a centralized institution, but they need to be able to coexist without tension. In order to get there, we need to combat the fraudulent and illicit activity associated with these digital tokens.
Does this mean time to invest?
Before investing in cryptocurrency there is a lot you need to consider. Aside from extreme volatility, you can see they are still very unproven. That all said, I personally think there is still money to be made trading cryptocurrencies. However, like any investment, you should be prepared to lose everything.
The all time great, Warren Buffett once said, “be fearful when others are greedy and greedy when others are fearful”. In these times of fear, it’s definitely the most difficult to pull the trigger. It’s also when the most money can be made. If you’re ready to invest, make sure you do your research and don’t forget to hold on for dear life.
[Please take note that I am not a financial advisor. Investing in cryptocurrencies is both highly speculative and risky. These opinions are my own and should be treated as such. Invest at your own risk]