What Do the New SEC Regulations Mean for Cryptocurrency?
Recently the SEC chose to place a new announcement on March 7, 2018, concerning the performance of cryptocurrency ‘exchanges’ such as Bittrex, Binance, along with many others (they were not called specifically).
Below, is an excerpt of this announcement that was released on their site:
The name itself is ominous enough by devoting specific stages, “overwhelmingly unlawful.” This, as well as this simple fact that numerous accounts have come out in the past couple of months suggesting that the SEC is actually beginning to crack down on cryptocurrencies (ICOs mostly) generally, has revived old fears the distance is going to be controlled to a place where it’ll stop cryptos from growing and getting embraced.
Why Are These Governments Insisting on Regulation Anyway?
The core cause of its governmental insistence on regulation comes from the fact that cryptocurrencies are broadly defined from the United States as an ‘advantage’ as opposed to a money. The main reason why this is a big deal is the classical definition of a safety is a “tradable financial advantage. ”
Therefore, the commerce of cryptocurrencies drops neatly under the authority of the Securities Exchange Commission.
But, their occupation has not been always as cut and dry as you can expect for several reasons:
- For a long time, the SEC and the government simply weren’t really paying attention to cryptocurrencies. Sure, they would come up on the radar from time to time when massive events (i.e., Mt. Gox) would occur, but no one took it seriously enough to really devote concrete government resources to addressing it at large.
- The value of bitcoin was negligible in the financial world. At one point in time, the entire cryptocurrency space was worth less than $50 billion. That total represents a tiny fraction of the S&P 500, and wouldn’t even earn you a controlling stake in most of the top 10 companies being traded there today. Thus, the crypto market was seen as small fish.
- Folks simply didn’t understand cryptocurrency. The technology was even newer to the public a couple of years ago than it is now, so the government didn’t understand enough about cryptocurrency on a conceptual level even to attempt to approach it. And while people still are trying to ‘catch up’ in terms of understanding cryptocurrency, there’s a substantially greater level of effort being put into the endeavor at this point than there ever was before.
- ICOs weren’t as popular a couple years ago. When Ethereum released in 2014 as the world’s first official ‘ICO’ and raised $18.4 million, the crypto world was stunned. However, since then, $18.5 million is small chips compared to what’s being raised on the market now. In fact, through just February 2018, there has been over $1 billion raised through ICO funding already, putting the market on pace to smash the record $4+ billion that was raised in 2017. This monumental total is one of the major aspects of cryptocurrency that demanded the attention of the SEC and the CFTC because:
- The government saw that a lot of the ICOs being released mimicked IPOs in nature and deemed that the players in the market were essentially issuing unregulated securities, which is a huge no-no for both of these agencies.
- Some of these ICOs were complete scams, and the owners were disappearing with people’s money as soon as they finished their rounds of funding. Given the nature of cryptocurrency, a lot of people were able to get away with this entirely.
- A lot of ICOs were avoiding paying their taxes as well, which is yet another thing that federal governments harp on heavily. They don’t like it when they feel like people are avoiding paying their fair due.
Due to all reason listed above (and a few), both the SEC and CFTC have determined that they both want to step into and seriously cover the crypto-market, and by the looks of this they are not messing about that time.
Check out this excerpt in the CNBC informative article on the subject which was printed March 7:
Why Don’t the Exchanges Register?
Since these exchanges understand that enrollment would kill their earnings flows.
Why? – Since registered exchanges are only permitted to market securities to agents and licensed investors.
We’ll All Just Have to Become Accredited Investors, Right?
Not so fast.
Heading out on a limb here many folks reading this or spent in cryptocurrency most likely don’t have a net worth north of $1 million. Cryptocurrency is not quite as popular of a investment option since the stock exchange, so when all the ‘ordinary’ income investors become flooded from the current market, then there’ll just be a large majority of people staying that are able/willing to spend knowingly. Therefore, this type of judgment, if enforced correctly would basically cripple the crypto marketplace if it had been to go in to effect.
Here’s Why You Shouldn’t Panic
If you read the above excerpts carefully, you will notice that the SEC always has known to exchanges which may be ‘exempt’ from needing to stick to these principles.
How Can They Get Exemption?
If the SEC decides to record the exchange within an ‘alternative trading platform.’
Based on Investopedia, an alternative trading platform is, “…One which isn’t regulated as an exchange but is a place for fitting the purchase and sell orders of its readers.”
According to this definition, it is reasonable to presume that exchanges would satisfy this definition with comparative ease.
Another important excerpt to see from that Exact Same article is posted below for your convenience:
In various ways, these items would really benefit cryptocurrency dealers. It might force the exchanges to become transparent in their transactions and could likely help provide some amount of ‘safety’ and security to the investment world which didn’t exist before. It would nevertheless allow exchanges to cope directly with different clients without needing to confirm they are ‘licensed traders,’ and it might find the SEC from the backs finally and permit cryptocurrencies to exchange without being educated or stressing about being ‘shut down’ consistently. Therefore, these things possibly signify big wins for your crypto-world in large.
So How Would the Exchanges Become Listed as an ATS?
From the info that the SEC supplies, the procedure seems to be relatively simple, and it seems they examine applicants and take them on a regular basis too.
How Does This Play Out For the CryptoWorld
This is only one of the more intriguing questions which will most probably linger for the upcoming few months/years since cryptocurrency trading persists. Given that the fact that everything happening is online, using a reasonable quantity of trading occurring beyond the United States’ authority, it’s exceedingly improbable that exchanges will likely be shut down entirely because of this enforcement.
Nonetheless, in the jurisdictions in which other significant exchanges are, other stringent regulatory steps have already been released, such as in South Korea and China, and it appears like that the U.K. will probably follow suit. Thus, it’s unlikely that people will have the ability to just flee to exchanges which operate in various markets should they get access to those they trade on. The authorities of AML/KYC legislation has effectively interrogate and interrogate some efforts to usurp those regulations using a proxy too.
Challenges with Regulation
There are a couple of inherent challenges which the SEC will confront on its assignment to control cryptocurrencies. Listed below are a couple of of the challenges that they need to overcome.
It is important to keep in mind that the SEC is responsible for regulating all of securities, therefore this includes the NASDAQ, S&P500, etc., along with each of the other businesses which are releasing as IPOs and shifting their inventory construction, etc.. When there’s any Forex trading, offenses, hedging trading, or alternative unethical/illegal behaviours.
Given the rising amount of participants at the cryptosphere, the huge number of ICOs, and exchanges which are popping up, along with all the other resource requirements of the SEC, it stands to reason that their endeavor to control the industry will likely be difficult to say the least. It remains to be seen if the bureau will even have the ability to apportion the vital associates to effectively implement regulatory actions within a successful and sweeping fashion anytime in the not too distant future.
All these exchanges, which function on the grounds of not being manipulated by one thing, may be much harder for the SEC to identify and try to regulate. As an increasing number of jobs start to vertical themselves as a completely autonomous system for facilitating commerce between parties, it could be almost (no pun intended) impossible to prevent those entities from working.
It is probably that the SEC is because of both constraints listed above, meaning they’re more than aware of how excess regulatory actions could potentially induce the whole system ‘underground,’ so to speak, and also make future regulation almost impossible. Therefore, it’s very likely they won’t be too draconian at the steps they attempt to execute.
It’s also more than probable it’ll be many months/years prior to the SEC can receive any vapor supporting their regulatory efforts and from there, the neighborhood might be progressed to the stage where any type of law is only infeasible.
The regulator has to do this with no so heavy-handed they induce actors in the cryptocurrency room to play with ‘chicken’ with the SEC by expecting their ‘bluff’ When the SEC becomes vulnerable because of its shortage of judicial power from the area, the announcements issued such as the one this guide is covering will shortly become ignored.
Consequently, in the writer’s humble opinion, this isn’t something which ought to breed extra anxiety from the cryptosphere. In reality, it’s a statement which should have been anticipated.