22 Dec 2018
SEC and cryptocurrencies have always had a special kind of relationship. You could describe it as a "love-hate relationship". Like any other love-hate relationship, this one isn't too healthy either.
Many have blamed the SEC for the losses in the 2018 bear market, but you have to admit that crypto markets are very volatile and all the previous bear markets also had close to 90% losses. You could say that this is a part of the natural cycle of the crypto markets.
U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States government. It is an agency which primarily focuses on enforcing rules and regulations on securities.
A security in its simple definition is any proof of ownership that has been assigned a value and may be sold.
If you're still confused, think of the stocks. Stocks are securities. If you have stocks of a certain company you have the ownership and you can sell the stocks.
Cryptocurrencies are currently in a regulation grey zone as the SEC has not yet decided whether or not crypto coins and tokens are securities. They have made some rulings but the majority of the crypto space is still not regulated.
Why is all of this important? SEC is in charge of ruling whether or not cryptocurrencies are securities. If they rule that cryptocurrencies are securities, many companies that issued coins and tokens would need to follow strict laws and regulations.
The SEC is a US agency and has the authority only in the USA. But the USA is also one of the biggest cryptocurrency markets. Whatever the SEC decides it would be a big deal for the whole crypto world and many similar agencies in other countries could soon follow suit.
Currently, there is a big debate in the crypto community about ETFs and about the SEC rulings regarding them.
ETF is an exchange-traded fund which is a fund that is traded on traditional stock exchanges. These kinds of funds typically own underlying assets (stocks, bonds, foreign currency etc.) that are broken up into shares and owned by investors.
ETFs are one of the main investment tools used by a lot of investors. But why are ETFs so important for crypto and what is the SEC role in all of this?
Many companies are pushing for a Bitcoin ETF, where Bitcoin would serve as the main asset in the fund. Bitcoin ETFs would draw in institutional investors and would provide much more liquidity and legitimacy to the crypto markets.
Photo by Aditya Vyas on Unsplash
The SEC has so far rejected all Bitcoin ETF proposals, because of the risk of market manipulation and possible fraud.
There has also been a lot of talk about the ICO regulations. Many ICO projects thought they avoided the SEC regulations by issuing "utility" tokens. But the SEC doesn't see it that way. Jay Clayton, the chairman of the SEC said:
"We don't believe Bitcoin is a security. Many of the ICOs that you see and you talk about, they are securities. And if you're going to offer or sell securities, you have to do so in compliance with our laws.
We've been clear about that, the recent actions further emphasized that our securities laws to apply to the ICO space, and if people are going to raise money using initial coin offerings they either have to do so in private placement or register with the SEC."
There have also been a lot of fraudulent ICOs, just think about how easy it is to issue your own tokens and hold an ICO. The SEC recently charged Floyd Mayweather and DJ Khaled for promoting a fraudulent ICO.
It might seem that the SEC is against innovation and cryptocurrencies but the SEC is not strictly against cryptocurrencies. They are just trying to protect the people from being scammed by fraudulent financial offers.
They are trying to bring some rules and regulations to this sometimes crazy cryptocurrencies market. Take it from Hester Peirce (the SEC Commissioner), often also referred to as "Bitcoin mom", because of her pro-Bitcoin views. She said:
"The Commission's mission historically has been and should continue to be, to ensure that investors have the information they need to make intelligent investment decisions and that the rules of the exchange are designed to provide transparency and prevent manipulation as market participants interact with each other.
The Commission steps beyond this limited role when it focuses instead on the quality and characteristics of the markets underlying a product that an exchange seeks to list."
The SEC even ruled that Ether, the native token on the Ethereum network, is not a security. However, one thing is clear. A crypto regulation will eventually come, but that is not a bad thing. Regulations will draw in bigger investors and provide some protection from fraudulent projects.
As you might already know, we have recently issued a card game called Crypto Cards.
One of the cards in the game is the SEC card, which you can use on another player to prevent them from drawing a card. We could say that this card "regulates" a game of Crypto Cards. :)