Published: Fri, March 09, 2018
Economy | By Shawn Conner

SEC issues strong warning to potential cryptocurrency investors

SEC issues strong warning to potential cryptocurrency investors

The US Securities and Exchange Commission (SEC) now requires that platforms trading digital assets which meet the definition of a security must register with the agency as an exchange, according to a public statement issued by the regulatory body on Wednesday, March 7.

Interestingly, the SEC tends to stress the fact that cryptocurrencies might be viewed as securities, while the US Commodity Futures Trading Commission (CFTC) considers them commodities.

In a statement today (March 7), the SEC argued that digital assets, like coins and tokens offered and sold in initial coin offerings (ICOs), fall within the definition of a "security" under United States security laws.

A post on SEC.gov laid out the new ground rules.

The statement later adds "The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not".

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According to the SEC, some platforms offer an asset trading mechanism that falls under the definition of a "security" in terms of federal securities laws.

See the list of questions here.

"The federal regulatory framework governing registered national securities exchanges and exempt markets is created to protect investors and prevent against fraudulent and manipulative trading practices", it said. But the SEC's move is the newest sign that cryptocurrencies and related fundraising techniques called initial coin offerings (ICOs) are becoming less Wild West and more business as usual. Bittrex, however, has published an official response that clearly outlines the legal status of assets traded on the platform.

In reality, the SEC explained, the agency does not review the listing requirements of these exchanges or the "trading protocols" they might employ.

"The platforms often claim to give investors the ability to quickly buy and sell digital assets". These platforms should register themselves as a national securities exchange otherwise they will be exempted from federal protection.

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Does the platform operate as an ATS?

"The challenges are probably going to come up for these smaller or second-tier companies that are making a market or trading the non-foundational assets [or] ICOs", said Ryan Gilbert, partner at Propel Venture Partners, which is indirectly a minority investor in Coinbase.

Are platform users treated equally?

How does the platform safeguard users' trading and personally identifying information?

What other services does the platform provide? If so, how are these assets safeguarded? In his spare time, Matthew loves playing basketball and listening to podcasts.

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