How SEC Plans To Change The Cryptocurrency Markets
How SEC Plans To Change The Cryptocurrency Markets
Regulation

How SEC Plans To Change The Cryptocurrency Markets

By Guest post - 6 Jan 2023

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Cryptocurrency is digital money and is still largely unregulated in many parts of the world. It is not uncommon for crypto investors to lose funds to scam crypto coins and exchanges. As the United States is a key player in the global cryptocurrency market, the U.S. Securities and Exchange Commission (SEC) has decided to focus more on imposing regulations in the crypto markets. 

The SEC is a financial regulatory agency in the United States that is responsible for overseeing the activities in the securities markets. Crypto trading can occur on exchanges or as CFDs via a reputable and regulated crypto currency broker

The main goal of the SEC’s regulation in the crypto markets is to prevent investors from being manipulated by fraudulent crypto exchanges and tokens.

The Need For The Intervention Of SEC In The Cryptocurrency Markets

Humans are always looking for ways to make money from every new technological trend. The massive price rise of bitcoin has rapidly increased the popularity of cryptocurrencies.

This popularity many times sparks the Fear Of Missing Out (FOMO) for many new investors that do not fully understand how the crypto market works. The FOMO in the crypto market has become a major point of exploitation by scam crypto exchanges and coins.

The crypto market of today is synonymous with how the capital markets were operated in the 1920s. The SEC was charged with the responsibility of overseeing the capital markets and any other security that may arise in the future. It is easy to wonder if cryptocurrency is a security.

The U.S Supreme court identifies securities using the Howey test which states that an “investment contract” is a security if it is:

“a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” 

This shows that cryptocurrency is a security that needs the intervention of the SEC to help protect crypto investors from market manipulation and exploitation.

How SEC Plans To Change The Cryptocurrency Markets

The three major focuses of the SEC regulation in the crypto markets are exchanges, stablecoins, and other coins (especially new tokens). The SEC has started imposing regulations in the crypto markets but this is planned to increase in the coming years. It is high time crypto businesses took the SEC more seriously.

Exchanges – Register With The SEC Or Forfeit The U.S. Markets

The SEC is the federal regulatory agency that is responsible for ensuring sanity in the securities markets in order to protect investors from market manipulation and fraud. Imposing regulations on the crypto markets has become a top priority for the SEC.

During a senate banking committee hearing in September 2021, SEC Chair Gary Gensler stated that crypto exchanges should be registered as securities exchanges. To show the seriousness of the SEC, Gary repeated in April 2022 that “these crypto platforms play roles similar to those of traditional regulated exchanges. 

Thus, investors should be protected in the same way,”. Some crypto exchanges or coins may feel that abiding with the SEC crypto regulation is too stressful and just decide to avoid the U.S. crypto market entirely. Avoiding the United States’ crypto regulation may seem like a smart move today but it is very likely that other major crypto countries will also decide to impose crypto regulations in the future.

Tighter Regulation For Stablecoins

In a bearish crypto market, investors are likely to convert their holdings to stablecoins in order to preserve the value of their investments. Stablecoins are cryptocurrencies that have a fixed value that is pegged to a fiat currency like the dollar.

To back their pegged value, many stablecoins have large cash reserves or other assets with low risk. The collapse of Terra (UST) in May 2022 has left many wondering if other stablecoins are actually stable and have enough reserves to prevent another collapse. 

Gary in April 2022 asked:

“What backs these tokens so we can make sure that these holdings can actually be converted to dollars one-to-one?”.

The SEC classifies crypto exchanges in a similar category as other security brokers and is likely to consider many stablecoin trades as securities transactions that also require regulation.

Increased Scrutiny For New Crypto Tokens

In 2017, there was an initial coin offering (ICO) boom and the SEC declared that DAO tokens were investment securities. In the recent past, the SEC has focused mostly on imposing regulations on ICOs, but the crypto markets have witnessed an influx of new token types ranging from DeFi to NFTs. Ripple Labs Inc. and two of its executives were sued by the SEC in 2020 for the alleged violation of the SEC securities laws. It is stated that the Ripple token was sold without adhering to registration and disclosure requirements. There are also ICO issuers that have been fined out of court. In the future, we expect to see increased regulatory scrutiny for new crypto tokens.

Conclusion on How SEC Plans To Change The Cryptocurrency Markets

There is currently massive exploitation and market manipulation in the cryptocurrency markets. The U.S. SEC started imposing crypto regulations in past years and intends to increase their focus on the United States crypto market. In order to achieve this increased regulation of the crypto market, the SEC has added 20 positions to the unit that regulates the crypto markets, increasing the unit to 50 dedicated positions.

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