SEC Releases Warning for Potential Investors of Cryptocurrency

The Securities and Exchange Commission (SEC) has been zeroing in on cryptocurrency since the start of the year. The agency revealed that it would scrutinize companies that are generating hype by turning to crypto before investigating deeper into initial coin offerings with subpoenas. Today, however, the agency turned its attention to the people who are purchasing cryptocurrencies, warning the consumers against trusting the so-called ‘exchanges’ that imply or state that they are protected by federal law. Spoiler: They are not, since the cryptocurrency world remains to be an unregulated mess.

It all comes down to denotative wording. Whether or not the said online trading platforms consider the ‘digital asset’ cryptocoins that they are trafficking to be ‘securities’ under federal law, the SEC possibly does. That means that they satisfy the definition of the agency of ‘national security exchanges’ and should be registered with the SEC. If they do not, they remain outside of government regulation and scrutiny, meaning that the agency cannot protect the individuals from any fraudulent or manipulative practices.

In a post, the SEC stated: “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. Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.”

If the consumers continue to make use of an unregistered ‘exchange,’ all the SEC can do is give an extensive list of questions that the individuals should ask in order to protect themselves. The questions include discovering how the platform chooses digital assets for trading, how its prices are set, who can trade on it, and whether the platform is treating the users equally. The SEC also recommends that users evaluate the security for data and assets of the trading platform, which is important in the wake of various successful incidents of hackers that are robbing initial coin offerings and exchanges in 2018.