SEC Regulations and Their Effect On Exchanges and ICO Projects

The cryptocurrencies acquired a lot of interest in the past couple of years. The main reason is, of course, the freedom in trading currencies due to lack of governmental regulation. By now, the market is still developing as well as technologies related to it.

However, the lack of regulations also creates multiple possibilities for scam and fraud cases. Those include stocks being hacked, ICOs compromised or simply faked. These kinds of cases created a necessity for developers to be more careful with their code, customers more demanding, and investors more careful. The market introduced ICO listing websites for obtaining information about upcoming and existing ICOs.

Legislation Attempts On the Market

Such activity couldn’t possibly stay unnoticed by the authorities. So, a few have tried to introduce some regulations. For example, authorities in China and South Korea have issued a ban on ICOs and any cryptocurrency websites as of September 2017. The main reason was the extensive and extremely fast growth of the market, which could lead to the crash of the market and issues in the economy.

South Korea then followed the example of their neighbor. However, recently it has been said that they might ease the ban. According to Korea Times, the country might lift the regulations for those who meet specific conditions. The conditions themselves are not yet available for the review though.

SEC Regulations and Their Reasons

The situation with regulations differs from country to country. In the European Union, for instance, no state member is legally allowed to create their own currency. Nevertheless, digital currencies exchange is legally allowed in most countries.

The Securities and Exchange Commission (SEC) in March 2018, stated they consider cryptocurrencies to be securities. Thus, they should be traded in accordance with the existing regulations for securities. This includes the registration of a platform or company trading with SEC. Some platforms could be exempt from the registration if they are operating as an ATS in accordance to the SEC Regulations.

The rules introduced by SEC require a company to comply with the standards. Special attention is being paid to fraud and cyber attacks protection. However, earlier in June, the head of the Division of Corporate Finance, William Hinman, announced, that Bitcoin and Ethereum are not considered by them as securities. This has lifted the necessity of regulations compliance from the exchanges. Nevertheless, ICOs are still in the game.

Even though there are no official regulations yet, SEC has made an announcement back in May 2018, with recommendations for potential investors and earlier also have provided a list of questions, investors should ask before putting their money into a project. To prove their point, SEC even launched a fake ICO with the token called “HoweyCoins”. The authority is deeply concerned by the number of fraudulent ICOs. They expect the future regulations to affect the situation by strict control on the coin offerings.

The Effect Of the Regulations On Market

As the interest of governments in the cryptocurrencies market grows, the changes might be inevitable. Which brings its pros and cons. Let’s start with the positive points.

• The regulations are supposed to make the process more transparent. This will bring more trust of potential investors in the projects that will present themselves.
• Less potentially fraudulent projects will appear on the market. The fraudsters are less likely to invest their money to launch an ICO. This is especially true considering that there is no guarantee of raising the money.
• This situation might help the development of the cryptocurrency world in the direction of physical assets. While there is very little probability of the cryptocurrencies becoming secured by the fiat currencies, the regulations might help to connect the cryptocurrencies to the world of physical markets.

Of course, as everywhere, there are pitfalls in the idea.

• One of the main problems is that some of the companies will most likely not register but will still operate. The question here is if SEC will be able to regulate these cases. And another question is if the investors will still trust non-registered companies.
• Another issue which might occur is the necessity of registration. Small businesses might simply not be able to afford the registration in order to launch an ICO. This will force them to either cancel the idea of a coin offering or go into the shade and operate illegally.

The Bottom Line

All in all, at the moment, it is hard to predict how exactly the regulations will affect the industry of digital currencies. The new laws might bring quite a few benefits to the investors and those companies who are willing and able to comply. Nevertheless, the possibilities for small businesses are likely to be limited. We can only hope for the regulations to be executed with the consideration of these points.

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