The U.S. Securities and Exchange Commission (SEC) released a statement this week that clarifies the responsibilities of all companies involved in trading and offering cryptocurrencies. These crypto companies will now be required to register with the commission and the new requirement has had a negative impact on the crypto currency market with many crypto currency prices dropping.
SEC Imposes Stringent Rules On Crypto Providers
According to the SEC statement, all platforms that operate as an exchange by allowing the trading of digital assets such as cryptocurrencies must register with the SEC as a national securities exchange. Analysts believe that the SEC statement not only targets bitcoin but also the numerous initial coin offerings (ICO) that raise billions of dollars but end up making fraudulent claims.
Currently, the SEC follows the Howey Test created from a 1946 U.S. Supreme Court case to determine whether an asset is a security. According to the parameters set by the Howey Test, an asset is considered a security when it involves the investment of money towards a certain goal and if the investors are profiting from the efforts of others.
Ryan Schoen, senior financial services policy analyst at Washington Analysis believes that the SEC will start sending out subpoenas to exchanges who are not complying. He also believes many deceitful tokens will also start delisting to avoid scrutiny. In response, US-based cryptocurrency exchange Bittrex said that they are thoroughly reviewing all digital tokens listing on their exchange to make sure they are not considered securities.
But crypto offerings that do not fall under securities might still need to undergo through additional SEC review. Companies who are offering digital wallet services were also called out by the SEC and asked to assess whether they are required to register under federal securities laws. Some companies may find out that they need to apply for transfer agent, broker-dealer, or clearing agency registration.
Crypto Currencies Drop After SEC Statement
After SEC released its statement, many cryptocurrency prices dropped significantly. Bitcoin’s price fell under $10,000 and as of this writing stands at $8,600. Some of the other leading cryptocurrencies such as Ethereum, Ripple, Bitcoin Cash and Litecoin saw a decline of nearly 10 percent in a span of 24 hours after the statement was released.
Joe Saluzzi, co-founder and partner at equities brokerage Themis Trading, said that SEC’s report clear depicts strong resistance from the commission against the continuing popularity of cryptocurrencies.
In a statement, Saluzzi said:
“It sounded more like a warning to me, almost like a disclaimer. The statement is a reminder that cryptocurrencies are ‘the wild west, and investor beware.’ It’s certainly another sign that a [bitcoin] ETF is never going to be approved until they clean up the underlying.”