Cryptocurrencies are an enigma for governments, and this new type of currency is as frightening as it is potentially economically beneficial. Outside the inner volatile nature of these currencies, legislators and regulatory bodies aren’t armed to face a new market in which anyone can exchange anonymously directly. It raises the question of the different cryptos founded to take advantage of investors. The whole system is questioned by the US Securities and Exchange Commission (SEC).
People use various services to invest, whether using trading bots such as Bitsgap or simply using one of the most reputed exchange services like Coinbase or Binance. However, these exchange services have come under scrutiny lately, and here’s what you should know about them.
Bitcoin Isn’t a Crypto, SEC says
When people think about cryptocurrencies, the first name that pops to mind is usually Bitcoin. This currency is the pioneer of what we consider crypto nowadays. It launched the idea of digital, decentralized currencies. However, the SEC believes Bitcoin isn’t a crypto, according to Forbes.
This decision can be surprising, but it’s understandable when considering the evolution of the market since 2009. That’s because, even though Bitcoin has a value equal to all other cryptos combined and is one of the most decentralized systems, it doesn’t pass the Howey test.
The Howey test determines what’s an investment contract according to US laws and regulations, but also a monetary investment in a joint enterprise with a reasonable goal of generating profits from other people’s efforts.
The SEC Targets Coinbase
Coinbase is one of the largest exchanges in the world, and it’s also the only one the US government actually has power over since it’s US-based. Recently, the SEC asked Coinbase to stop trading all cryptocurrencies except for Bitcoin. The SEC then decided to sue them right after in order to assert their authority. According to Brian Armstrong, Coinbase’s Chief Executive, the SEC is suing Coinbase because they didn’t register the service as a broker.
In the SEC case, the government identified 13 traded cryptos as securities. Due to that, the exchanges fell under the regulator’s authority. Still, they required the delisting of every token, except for Bitcoin. They concluded they were all securities and refused to go into further details with Armstrong. Since the company refused, legal action is now taken, but it may be a good thing for crypto enthusiasts.
If Coinbase had complied with the SEC, it would have set a precedent. A dangerous one, forcing all crypto businesses to register with the commission to operate with US customers. Something which would have been hard to put in place and costly to regulate. Moreover, many exchanges also offer varied services, mixing lending and borrowing, which can’t be done with SEC-regulated companies.
It’s important to note that the comments from Armstrong have led to Coinbase distancing itself from its CEO, and the SEC commented denying ever recommending delisting any asset prior to the legal action taken. So, the declarations from both sides should be taken with a grain of salt.
Clarifying Crypto Rules
Due to its decentralized nature, the crypto market isn’t something a government or any central authority can really regulate. Several initiatives saw the light promising a hybrid system, offering more security to investors. It either failed because it turned out to be a scam or just never took off significantly.
Right now, the SEC is suing Coinbase, but also Binance (which proves difficult to the company’s location). So, they may need these tips to choose the right broker. The goal for the US legislator is to create coherent rules to gain more control over this new market. The official version is that the SEC wants to put a stop to get-rich-quick schemes and scams, but we could argue that the real goal is to have a hand in a market where they have no control, and their banks can’t speculate with minimized risks.
What The SEC’s Actions Mean For The US Crypto Market
With the US government finally taking legal action to regulate the crypto market, it’s clear that cryptocurrencies will have to change. If the SEC decides to ban any form of cryptocurrency unless companies decide to follow their regulations, we could see a massive drop in the market.
Many businesses won’t have the ability to abide by their regulations since some of their services can’t be authorized according to US regulations, mainly lending and borrowing. Overseas businesses would also have to follow to tap into the juicy US market and be able to interact with US customers.
The US is known for being the model setter when it comes to finance in the West. So, their decisions will also impact other countries and their residents. Countries like France, Germany, or even Latin American countries will probably adapt their legislation to be able to keep trading with the US, which may also impact the crypto market negatively.
