Redefining Cryptocurrency’s Regulatory Framework: Our Stance
On March 7th, 2018, the U.S. Securities Exchange Commission (SEC) publicly stated its view that some assets trading on virtual currency platforms meet the definition of “securities,” and that any platform that offers trading in these assets must be regulated as an exchange under U.S. securities law. This means that US financial regulators and other regulatory bodies around the world view coins and tokens through the same legal constructs that govern stocks and bonds. Just like the IPOs and trading floors of the traditional financial world, ICOs, airdrops, and cryptocurrency marketplaces could be under the SEC’s magnifying glass in the near future.
“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” the commission stated in its “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”
However, this isn’t necessarily bad news for The Ocean or traders. To better understand why financial regulation exists, let’s travel back in time to the 1920s and 1930s, around the time of the worst financial contraction in U.S. history, the Great Depression. The laws surrounding securities only existed on a state-by-state basis and were loosely enforced. As a result, fraud was common, and at the first sign of economic trouble, many seemingly safe investments became worthless. The stock market plunged by 75%, the banking system collapsed, and 1 in 4 Americans became unemployed. Out of this chaos, financial regulation was created to protect consumers and safeguard the economy from similar crises in the future.
The Truth in Securities Act of 1934 founded what we now know as the SEC for four main purposes:
- To restore investor confidence in the securities market
- To regulate and shutdown fraudulent activity and get-rich-quick schemes
- To end insider information and trading within major corporations
- To set up a system of registration for all securities sold in the U.S.
Through financial regulation, the SEC established a nationwide precedent of protecting consumers from predatory companies and security issuers. Furthermore, registration and disclosure helped solve information asymmetries, creating the framework for a fair and transparent marketplace.
These points echo true almost a century later. Though the U.S. financial market isn’t perfect and still undergoes turbulence, regulation is key to increasing access and presenting fair opportunities for all investors — a central tenet of the cryptocurrency movement. Decentralized protocols and platforms, particularly within financial markets, democratize access points and reduce friction. But fair, orderly, and efficient markets also require a commitment to regulating a decentralized world.
We say it’s worth it. Decentralized trading means lower fees, better execution, and less risk, and when we add in regulation and compliance, we also get:
- More transparency: More information and disclosure leads to better investing decisions
- More products: Securities law compliance makes it easier to tokenize traditional financial assets
- Larger investor base: More people are more comfortable engaging with the cryptocurrency community
- No market manipulation: We can all be sure we’re paying fair prices
All parties in a token transaction ultimately benefit from a level playing field, creating a healthy system which increases the potential and reach of the cryptocurrency community. That’s why we’re strong proponents for cryptocurrency companies to educate consumers, regulators, and governments on the benefits of decentralization in financial markets. And to the extent of regulatory “grey area,” we think it’s important for crypto companies take smart steps to self-police in sensible ways.
For cryptocurrency trading, we believe this means:
- Transparent disclosure by coin and token issuers, so customers understand exactly what they’re buying
- Crypto communities need to work with regulators to rewrite legal frameworks that might not be applicable to every crypto asset
- Marketplaces should stamp out manipulation and ensure safe trading for the average consumer
At The Ocean, we’re working on all three fronts. We’re communicating with token companies to make sure the coins we list meet good standards. We’re collaborating with regulators to redefine the regulatory framework in the virtual currency space (see: letter we sent to the Malta Financial Services Authority commenting on their proposed virtual currencies framework). And we’re actively in the process to become a registered U.S. broker dealer and alternative trading system (ATS). Unlike unregulated platforms, we ensure no front-running, spoofing, layering, and other tricks — so you can be sure you’re paying the best, fairest prices possible. And because we’ll be registered as a broker dealer/ATS, you’ll get access to products available nowhere else, specifically tokenized assets.
We strongly believe that financial services regulation, when done well, advances the interests of issuers, consumers, and well-functioning marketplaces. It is important that regulators recognize that new, innovative technologies may require a rethinking and redrafting of current legislation. It’s vital for technologists and innovators to be active participants in this process as well. You can count on The Ocean to not only be a safe place to trade all types of digital assets, but also a company that works tirelessly with regulators and the broader financial community to make safer, faster, and cheaper capital markets a reality for all.
__________________________
Let’s build a better decentralized world together. Mention us on Twitter or join our Telegram to stay vocal.
