At the time of writing, 100 of the most capitalized cryptocurrencies are plunging with the exception of Nexus and Iconomi.
It appears that the SEC crackdown—Statement on Potentially Unlawful Online Platforms for Trading Digital Assets–is a significant driver in this current tumble.
Statement on Potentially Unlawful Online Platforms for Trading Digital Assets
Divisions of Enforcement and Trading and Markets
March 7, 2018
Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”). The platforms often claim to give investors the ability to quickly buy and sell digital assets. Many of these platforms bring buyers and sellers together in one place and offer investors access to automated systems that display priced orders, execute trades, and provide transaction data.
A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws. 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 federal regulatory framework governing registered national securities exchanges and exempt markets is designed to protect investors and prevent against fraudulent and manipulative trading practices.
Considerations for Investors Using Online Trading Platforms
To get the protections offered by the federal securities laws and SEC oversight when trading digital assets that are securities, investors should use a platform or entity registered with the SEC, such as a national securities exchange, alternative trading system (“ATS”), or broker-dealer.
The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. 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. Likewise, the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute, and access to a platform’s trading services may not be the same for all users. Again, investors should not assume the trading protocols meet the standards of an SEC-registered national securities exchange. Lastly, many of these platforms give the impression that they perform exchange-like functions by offering order books with updated bid and ask pricing and data about executions on the system, but there is no reason to believe that such information has the same integrity as that provided by national securities exchanges.
In light of the foregoing, here are some questions investors should ask before they decide to trade digital assets on an online trading platform:
- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)?
- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
- Is there information in FINRA’s BrokerCheck® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform’s fees?
- How does the platform safeguard users’ trading and personally identifying information?
- What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users’ assets? If so, how are these assets safeguarded?
Other headlines that may have contributed:
- Mt Gox Trustee Sells $400 Million in Bitcoin and Bitcoin Cash
- Report: Japanese Regulator Could Suspend Some Crypto Exchanges
- Ether Price Hits One-Month Low and Could Test $700
- Litecoin Hits 12-Day Low in Fall Below $200
- DJIA is down -267.65 points
- S&P 500 is down -24.26 points
- NASDAQ is down -48.96 points
- Gold Futures also down -9.10
- Silver futures also down -0.30
The risk of loss in the trading of stocks, options, futures, foreign exchanges, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and foreign exchanges involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.