Another sea of red is plaguing Cryptocurrency traders after the U.S. Securities and Exchange Commission (SEC) issued a strong warning about “unlawful” cryptocurrency exchanges. Nearly every digital currency tumbled today, and most of them fell more than 10%.
The SEC declared that cryptocurrencies fall under the definition of a “security,” and therefore cryptocurrency exchanges are subject to regulatory scrutiny. As a result, any company operating a platform that enables people to exchange cryptocurrencies must register as a national securities exchange, or they would be considered unlawful platforms. The statement reads in part:
The SEC staff has concerns 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.
Subsequently, Bitcoin, Ethereum, and Ripple—the top three cryptocurrencies--are down roughly 7% at press time, which represents a small bounce from the daily low. Bitcoin briefly dipped below the $10,000 mark, but it’s currently just above that threshold.
The story is largely the same for the remaining 97 of the top 100 cryptos. According to Coinmarketcap.com, almost every single digital coin and token is down on value, with 68 having lost 10% or more earlier today. Most of those assets are beginning to climb again, but their 24-hour averages are still in the red.
Warning For Investors
The SEC recommends that investors use platforms that are registered with the Commission because there's no way of knowing if an unregistered exchange adheres to fair and ethical practices. Registered entities must adhere to the SEC’s listing standards, which affords investors added protection from fraudulent activities, but the Commission doesn’t review the standards of unregistered exchanges.
If you’re still keen on investing in the cryptocurrency markets, the SEC provided a list of questions that you may want to ask before dumping money into an unlawful entity that could one day be shut down. Registered entities include national security exchanges, alternative trading systems (ATS), and broker-dealers, and they should have no problem answering the following questions.
Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)?
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 (see our link to the list below)?
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?
Instructions For Market Players
The SEC also offered suggestions for entities that are operating online trading platforms that would currently be considered unlawful. The Commission said that they must register if they wish to continue trading digital securities, and they must adhere to the standards set forth by the SEC to qualify.
Registered national security exchanges and alternative trading systems “must have rules designed to prevent fraudulent and manipulative acts and practices.” The commission also said that self-regulatory organizations (SROs) must also have disciplinary rules in place that “enforce compliance” of employees and members with federal securities laws. Broker-Dealers must also register with the SEC, and they need “reasonable policies and procedures” to prevent insider trading and other misuses of non-public trade information.
For more information, see the SEC’s full statement on cryptocurrency trading platforms.