Digital currency prices fall after SEC warns about exchange dangers

The values of many digital currencies took a tumble after the U.S. Securities and Exchange Commission (SEC) said on Wednesday, March 7, that platforms used to trade digital currencies need to be registered. Bitcoin dropped 6.65 percent to $10,082 after the warning, Ethereum fell 7.55 percent to $756.29, and Bitcoin Cash dropped 9.14 percent to $1,095.77. Waltonchain, Hshare, and IOStoken took the biggest hit with a value decline of more than 22 percent over the last 24 hours. 

According to the SEC, digital currencies are deemed as investments, or securities, because each digital coin has a value that rises and falls like stock. Even more, many platforms for swapping digital currencies for cash or other cryptocurrencies fall under the “exchange” umbrella as defined by federal securities laws. These platforms should either register themselves as a national securities exchange or be exempt from federal protection. 

“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not,” the SEC states. “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.” 

The SEC notes that many cryptocurrency exchange markets claim strict standards regarding trade, but investors should be aware that these standards are not equal to or meet the same standards enforced by an SEC-registered national securities exchange. Even more, said markets provide books regarding updated bid and asking pricing along with the related data, yet there’s no guarantee that they have the same “integrity” as those provided by an SEC-monitored exchange. 

As an SEC-listed platform, a cryptocurrency trading market will have rules in place to prevent fraudulent and “manipulative” trades. That includes means for disciplining investors, exchange platform members, and all associated individuals. The market also must comply with the SEC’s rules while also submitting its own rules to the government agency. 

But the SEC’s statement issued on Wednesday warns of a mix-and-match method involving platforms registered with the agency, and services that don’t fall under the official exchange” banner, but still deal directly with SEC-registered platforms. These services would include digital wallets that receive, hold, and transfer digital currency. 

“In advancing the SEC’s mission to protect investors, the SEC staff will continue to focus on platforms that offer trading of digital assets and their compliance with the federal securities laws,” the SEC added. 

The many cryptocurrencies available are decentralized, meaning there is no central agency managing the monies, like a bank. The coins are also protected by cryptography, meaning the monies can’t be traced back to a specific individual. But the SEC’s new encouragement for trading platforms to register with the government indicates a rising interest from Uncle Sam, which recently cracked down on companies selling initial coin offerings, or ICOs. 

Last week, the agency issued dozens of subpoenas to companies, lawyers, investors, and related individuals who may have violated securities laws through these token sales. According to the SEC, all digital currencies should be listed as securities and registered with regulators.