Those who are investing in Bitcoin and other cryptocurrencies need to carefully watch regulatory actions and, often, should pay close attention to opinions shared by regulators that could provide hints as to the future of the cryptocurrency market.
A cryptocurrency lawyer can provide more insight into changes in the law and the shifting legal landscape when it comes to investing in virtual currencies.
Recently, the chairman of the Securities and Exchange Commission spoke about cryptocurrencies and about the approach that the SEC will be taking towards virtual currencies. The Chairman signaled the SEC’s intentions with regards to both regulation of trading cryptocurrencies as well as initial coin offerings (ICOs).
SEC States Its Position on Cryptocurrencies
Some cryptocurrency companies have argued that the SEC is not properly classifying cryptocurrencies, claiming that these virtual currencies should be treated differently than other assets as a result of their utility.
However, according to CNBC, the chairman of the Securities and Exchange Commission has indicated that it will not be changing the traditional definition of a security – or bending the rules when it comes to securities – in order to accommodate cryptocurrency.
The SEC Chairman stated that the U.S. has maintained the same definition of ‘security’ for a long time, has built a $19 trillion securities market that is the gold standard for the world, and will not alter their rules for securities just because of the emerging cryptocurrency market.
The current SEC rules regarding whether something counts as a security or not are determined by a test called the Howey Test, which stems from a 1946 Supreme Court ruling. Under the Howey Test, a security is money invested in a common enterprise in which the investor expects to make a profit primarily from efforts made by others.
Cryptocurrencies are being treated by the SEC as replacements for sovereign currencies, rather than securities, under this definition. However, tokens or digital assets that are used in initial coin offerings do count as securities because these tokens are digital assets that people pay for because they expect a return on their investment. Because all ICOs are seen as counting as securities, the SEC will regulate these.
Questions have long persisted into how the SEC will regulate cryptocurrency trading and, in late April, the Commissioner of the SEC reassured investors that the agency wasn’t trying to ban initial coin offerings and is willing to consider the development of legal avenues for cryptocurrency trading.
However, the SEC has cracked down on initial coin offerings, including warning investors of pump-and-dump schemes, charging several coin projects with fraud, issuing subpoenas, and creating a consumer education website – HoweyCoins.com – with the intent to demonstrate some of the ways in which websites can try to look like legitimate trading platforms even though they are really nothing more than scams.
While the SEC will not treat cryptocurrencies as securities under the traditional definition of securities, the agency is clearly moving forward with enhancing regulation and oversight, as the agency has a new cryptocurrency division and announced a new head of that division in June.
Investors need to understand that the rules on cryptocurrency trading are still evolving and should take steps to protect any investments they wish to make in order to minimize the risk of loss. A cryptocurrency lawyer can provide insight into safely investing in cryptocurrencies.