Securities Exchange Commission (SEC): The US Watchdog on Cryptocurrencies
Investors across the globe have always avoided the crypto market for its baffling qualities. The crypto world is renowned for its volatile prices that can ordinarily see prices fluctuate by a margin of up to 20%. It is for this reason that large investors are skeptical about joining the market. It is quite common to sleep a rich man and wake up impecunious as you lost all your wealth.
However, the announcement by the United States Securities and Exchange Commission, SEC, to join the industry might change the perception of investors globally. This guide will help you understand about changes that starters will experience after the SEC announcement.
Securities Exchange Commission (SEC)
The main reason why fiat currencies are prevalent across many countries is that they all have a regulating authority. Unlike virtual money, also called digital cash, traditional money is regulated through a central bank and thus poses fewer risks of scamming. In 1929, the American people lost confidence in the government after the stock market crashed.
It was for this reason that in 1934, the government established the Securities Exchange Commission to help prevent a similar situation. The primary role of the commission is to ensure the fairness of all players in the industry. It ensures that companies on the market provide accurate details to the investors.
The Securities Exchange Commission is thus an independent government agency entrusted with the role of monitoring the securities market. The commission helps protect investors from companies that may be failing but still providing inaccurate dealings. Such companies would scam investors who may blindly invest only for the ventures to fail.
How SEC Might Change the Crypto Market
The SEC regulations are likely to reduce the famed volatility of Bitcoins and other altcoins. This change will have the massive profits experienced in the crypto transactions come to an end. Nevertheless, even with the reduced earnings from volatile prices, more players may join the market. Crypto markets may have to forget the days of massive returns.
According to Polymath CEO, Chris Houser, these regulations will see the market transactions turn similar to those from conventional sources. Institutions may join the crypto industry as the volatility means they have more confidence in cryptos. Also, some of the investments from some of these corporations may, in turn, translate to millions of dollars. For instance, companies such as Vanguard and Fidelity handle a lot of money that if invested in the cryptocurrencies market would bring in millions of profits.
Creation of Viable Alternatives
It is common for Initial Coin Offerings, ICO, to fail as soon as clients commit their funds. Most ICOs do not provide supporting documents to prove their viability. As the coins do have any supporting documents, investors are highly prone to falling for scammers as compared to other investment alternatives.
SEC joining the market will not only make ICO/IEO/STO offerings a safer alternative but also promote accountability. Regulation by the commission will give large institutions the confidence to invest in the crypto industry. For instance, companies like Deloitte that deal with millions of cash would be skeptical about investing in crypto. Such firms would not risk their clients’ money in cynical schemes.
Among the significant characteristics of crypto markets is that they are encrypted and hidden. Crypto markets are also associated with protecting their operations from any regulatory authority. The activities and transactions are highly opaque. Additionally, the process of launching an exchange is undemanding. Therefore, it is easy for crypto maniacs to create and start exchanges without public scrutiny.
SEC joining the crypto market will bring in changes that will see the exchange costs surge. The fees will increase as the commission seeks to enact audit checks for exchanges. Thus, before coins are placed on the transaction, they have to undergo this check. The tests will see these costs shoot up. Therefore before coins are placed on the trade, one will have to substantiate if the investment is worth it.
According to Polymath CEO, compliance costs in all industries usually go up after regulations start. Back in the 90s, a similar scenario occurred with hedge funds. There was an increased compliance cost of up to 7%. The increase saw the entire operating costs for hedge funds go up after regulation began. The costs not only gave clients confidence while investing in the industry but also promoted the growth of the sector from 100 million to over 1 billion.
Challenges Associated with SEC Regulation
Curtailment with Investors
Most regulation tools tend to curtail individual investors from joining the industry. Regulators such as the SEC categorize investors to increase efficiency in the market. After classifying the investors, those that are outside the bracket can no longer participate in the tourney. Ordinarily, all clients are open to investing in any of the coins up for grabs in the exchange. Therefore, with a limited number of investors on the table, not everyone will hold crypto assets.
Over the years, regulators have maintained their stand that crypto coins such as Bitcoin and Ethereum are not money. SEC recognizes crypto coins as crypto assets due to their despised volatility. The price volatility of crypto coins is somewhat a turn off for investors and regulators. It is for this reason that the SEC wants to join the market and control the stability of these altcoins.
Benefits of SEC Regulations
The crypto market ordinarily deals with retailer investors. Retail investors do not have any requirements for joining the crypto exchange. However, the case is different from institutional investors, as they have dogged the criteria to satisfy. With a regulator in town, professional investors will have faith in crypto trading. Consequently, companies will raise more funds.
The Privacy Concern
The issue of privacy among crypto transactions is disheartening to novice players in the industry. However, with the SEC joining the crypto world, cryptocurrencies will cease from being encrypted and sub rosa to open and traceable transactions. Clients argue that investors would gain protection.
Cryptocurrency is somewhat a new concept not only to novice crypto fans but also to regulators such as SEC. The US Government has expressed interest in monitoring the crypto world. Now that the SEC has stepped forward to confirm their interests, all eyes are watching to see how everything plays out.
Originally published at https://cryptoadventure.org on May 1, 2020.