Cryptocurrencies have been known for the breakthrough technology they offer when it comes to bypassing the usual centralized models for added efficiency and privacy. This part has been the aspect most debated about where sides are taken as it ‘permits’ illegal activities but also offers users a new way to experience the internet and related technology.
Many authorities in the financial industry have made criticisms that relate to security. Now, SEC has recently come in to impose securities laws on cryptocurrency exchanges and most cryptocurrencies.
With this move by SEC, companies now need to pay more attention to their business models as they will be subjected to more scrutiny from SEC. On top of this, Senior Financial Services Policy Analyst at Washington Analysis, Ryan Schoen had the following to say about the situation:
"I think the next step here will likely be subpoenas to exchanges, if they haven't already started."
Given the determination of SEC’s imposing actions, they will also be looking into related services such as digital wallets offered by exchanges or partner companies.
"These and other services offered by platforms may trigger other registration requirements under the federal securities laws, including broker-dealer, transfer agent, or clearing agency registration, among other things," the statement said.
With online marketplaces supporting a whole industry that aims to offer services using breakthrough technology, the potential for fraud or unlawful practices can be hard to detect. To this end, SEC really intends to approach cryptocurrencies from many angles. SEC’s involvement is made clearer through its Statement on Potentially Unlawful Online Platforms for Trading Digital Assets made last March 7, 2018.
In the statement, the SEC warns that many online trading platforms declare themselves compliant with regulations when they are in fact unregulated. This much can be understood of SEC’s concern for the general public. As support, SEC is willing to review technologies being used by exchange companies so these will be compliant with federal securities laws.
“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.”
Analysts have commented that the SEC is less focused on Bitcoin and more on new coins that are released through Initial Coin Offerings (ICO). This further solidifies SEC’s stand against questionable practices as the technology behind these cryptocurrencies is not the cause for concern. The promise of returns from these ICOs has attracted many investor dollars over the past years, and a number have been proved to be fraudulent.
Although subpoenas are already being sent out to ICOs, there does now seem to be a formal, more immediate attack on cryptocurrency exchanges in the US.