Cryptocurrencies Tumble After SEC's 'Unlawful' Exchanges Statement

News
By Kevin Carbotte
published

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.

Kevin Carbotte

 Kevin Carbotte is a contributing writer for Tom's Hardware who primarily covers VR and AR hardware. He has been writing for us for more than four years. 

43 Comments Comment from the forums
  • Dark Lord of Tech
    Hopefully they tumble very very low , so people can build a decent Gaming setup at a fair price.
    Reply
  • InvalidError
    The noose on crypto-trading got a little bit tighter. Not a major issue until more countries choose to do something similar.
    Reply
  • Dark Lord of Tech
    It will eventually fall , I agree , it's only a matter of a few more countries jumping on board.
    Reply
  • TJ Hooker
    If an exchange resides in a country that passes a law like this, and they don't want to abide by securities regulations, I feel like they'd probably just reincorporate in a different country. Also, decentralized exchanges are growing, and I'm not sure how feasible it is to regulate those based on the laws of any particular country.
    Reply
  • mapesdhs
    Hillarious ruling by the SEC, the inevitable attempt by the state to prevent wealth being exchanged outside its control, because of course state-controlled systems always do everything by the book. :D The long history and legacy of the Fed shows reality is very different, actively creating fake money to bolster up an economy by buying its own debt and junk products, all to make it look like everything is ok because money appears to be at least moving through the system. Numbers are fun, here are some good ones:

    http://www.usdebtclock.org/
    Reply
  • Math Geek
    really they may not be able to monitor and regulate all the exchanges but what they do is the same thing they do with all the other ways to move money around. they regulate it through the banking system. if an exchange decides ot move country they now fall under a ton of other international banking laws. so moving the bitcoin would still be easy to do but getting cash in and out of the network is where the problem lies.

    same thing they did when the US wanted to kill the online poker world. they knew they could not make something illegal based in another country. so they instead made it illegal for the US banks to handle the money coming and going from the players here in the US. that pretty much killed it for US players since they could not get money onto and off of the sites.

    same thing they are doing here. registering the exchanges is simply a way for the gov to monitor who is using them and ensure they are paying taxes. not the same thing as killing it completely but i'm sure many folks using bitcoin would prefer to stay off any gov's radar.
    Reply
  • InvalidError
    20771396 said:
    If an exchange resides in a country that passes a law like this, and they don't want to abide by securities regulations, I feel like they'd probably just reincorporate in a different country.
    If most major countries adopt SEC-style regulations for crypto-currencies, which makes sense from a consumer protection point of view so I have very little reason to doubt many other countries will step in, then that leaves unregulated crypto with only shady countries to trade in.

    How would countries like Niger like the USA pulling all military and humanitarian help out of the country, slap a trade embargo on top and ask allied countries to do the same?
    Reply
  • matthew.mark.harris
    SEC just showing how scared they are of crypto.
    Reply
  • bit_user
    Unless you're a criminal, it's just dumb to use an unregistered exchange. As they say, you have no legal protections and do you really think such exchanges are the most secure against hackers?

    I didn't touch Bitcoin until I could deal with a legit exchange that (as much as anyone) does things by the book. The last thing you want is to get smacked with money laundering charges. You just have to accept that if you're a US citizen, you have to follow the securities laws. Anything else is just playing with fire.
    Reply
  • bit_user
    20771373 said:
    The noose on crypto-trading got a little bit tighter. Not a major issue until more countries choose to do something similar.
    No, nothing changed. They're just reminding people of the securities laws that always applied to crypto currencies since the US government decided to regulate them as an asset (which was like 5 years ago).
    Reply