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SEC Puts An End To The Limbo Of Cryptocurrency 'Exchanges'

Erich Reimer profile picture
Erich Reimer


  • As the public cryptocurrency craze begins to settle down, the SEC is coming in to clean up the mess.
  • Following a wave of subpoenas to ICO-related participants, now the SEC is moving on to cryptocurrency exchanges and stating they likely will have to formally register.
  • These companies that have long advertised themselves, either functionally or explicitly, as exchanges will now have to comply with the legal disclosure and reporting requirements of securities exchanges.
  • Cryptocurrency prices collapsed across the board in response, with it initially unclear why as the statement was against exchanges rather than the cryptocurrencies themselves.
  • Greater cryptocurrency exchange restrictions may affect supply and demand for cryptocurrencies, which have been a major determinant of current market prices, supports, and movements.

The Securities and Exchange Commission's statement on Wednesday that cryptocurrency (OTCBB: COIN) (OTCBB: GBTC) exchanges likely will need to formally register with the SEC, as other securities exchanges do, may affect cryptocurrency supply and demand as the primary mechanism many buyers and sellers utilize is potentially disrupted.

However the immediate crypto-price reaction seems to come from the greater fear of the "regulatory sharks" now finally circling cryptocurrencies, which in a market as soft as cryptocurrencies could have just as great an impact.

Cryptocurrency "Exchanges"

Cryptocurrencies do not require an exchange to function, as cryptocurrencies can be directly transferred between participants. However cryptocurrency "exchanges" have allowed many who want the ease and security of securities exchanges, thereby becoming a major mechanism for cryptocurrency acquisition and disposition.

These exchanges number in the hundreds and allow users to quickly acquire and dispose of cryptocurrencies, switch between different cryptocurrencies, hold the cryptocurrency, fund and withdraw from their accounts with fiat currency, and all the other aspects of a typical securities exchange such as the NYSE or NASDAQ.

These exchanges also function not only as an exchange but also as a broker-dealer, helping their users acquire and dispose of their assets in that market. They, of course, charge various transaction and user fees, resulting in what has been a quite profitable business for many of these exchanges due to the billions of volume each day for cryptocurrencies.

(Source: Bloomberg)

The SEC Says "The Party's Over"

That is where the SEC's statement comes in. Just days after the SEC began issuing subpoenas to a broad array of ICO and cryptocurrency companies, as compared to the previously targeted approach against clear and outrageous fraudsters, the SEC issued the following extremely strong statement which states, in part, after a warning to investors to "market participants operating online trading platforms":

This article was written by

Erich Reimer profile picture
I primarily write on cryptocurrencies and other frontier technology topics. I hosted "Tech Investment Insights" here at Seeking Alpha, exploring emerging technologies with some of the world's most innovative corporate leaders and entrepreneurs. My professional background is in public policy, financial regulation, and the business side of the technology sector. I'm a licensed lawyer in the District of Columbia and the State of New York. I earned my Bachelor's degree from the University of Pennsylvania, to include training at Wharton, and my law degree from the University of Virginia.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (13)

The author unfortunately failed to address some key points. There is a rainbow of assets being traded on the blockchain, from digital coupons to currencies to outright stock shares in ICOs.

The SEC is worried about the latter, not the two former. There's legal precedent for what is a security and all of the major US bitcoin to dollar exchanges figured out the difference a long, long time ago.

Coupons and currencies are regulated elsewhere. (FinCEN, CFTC, & per-state MSB regulators)
Verkruimel profile picture
The recent dips in the price of cryptocurrencies have more causes than just the SEC ruling. See the analysis of Bitcoin and CombiCoin I just posted : https://seekingalpha.c...
boycehomes profile picture
Bitcoin - the bank of "you". ...good old uncle sam wanting a piece of the pie.
What about firms operating “crypto investment funds”. Sort of a crypto hedge fund. Will they be targeted?
If they custody assets they should be required to register as well.
soloinvestor profile picture
" cryptocurrency (OTCBB: COIN) (OTCBB: GBTC) exchanges "
COIN does not exist.

GBTC is not an exchange and It is not Bitcoin. It trades at premium to BTC.
BitcoinMillionaire profile picture
The IRS calls cryptocurrencies "property". The SEC calls them "securities".

These government agencies need to sit down together and decide what they are and make rules accordingly and uniformly.
Either way, taxes have to be paid when a profit is shown or a loss taken so it seems it's it can be a bit of both.
TheShaunPEffect profile picture
Regulation Status: So Far, So Good.... * Crosses Fingers *
I’m shocked! SHOCKED! That tax evasion is going on here.
Brigadier Lethbridge-Stewart profile picture
Coinbase should comply with the emerging rules and begin issuing 1099s like any other brokerage. If they do it will really help their business grow.
Baidewei profile picture
You want “collapses” try $GE instead
I second that....
why so I think this is long term positive?
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