Statement on Potentially Unlawful Online Platforms for Trading Digital Assets
sec.gov
sec.gov
Would all of this not also remove the ability to create those 'free exchanges'?
You will still have the ability to start an anonymous exchange, it just wont necessarily be legal in all countries.
Since the MtGox fiasco, I've never bothered trying to liquidate any more of my Bitcoin, and instead just occasionally use it to pay for things which accept direct Bitcoin payment.
I'd be a lot happier with a trustworthy, audited exchange.
If there are smaller exchanges that couldn't deal with the regulation, they probably also can't deal with security, keeping enough secure reserves to be able to pay out in the case of losses, auditing both their security and finances to ensure that they stay healthy and liquidate gracefully if they ever run into financial trouble.
I really wish the SEC or FinRA would supercede the state level money transmitter regulations. It makes little sense for a money transmitter that transmits money across state borders to be regulated by the whims of both states instead of the government that has regulation of interstate commerce as part of its constitution. And it would give regulatory evaders like Kraken an all or nothing choice instead of their current practice of only doing business where there's no regulation.
Bitfinex and Bitmex are two of the largest exchanges and it certainly seems like there's frequent incredibly shady activity with frequent large flash crashes presumably as insider trading to liquidate margin calls and/or stop loss orders.
I don't think this is true. Apart from Bitmex, I'm not aware of other major exchanges being registered there. Bitstamp (Europe), Coinbase (US), Kraken (US), Bitfinex (HK), Binance (HK?).
This site likes to complain about wealthy inequality - common people like your grandparents and uninformed but good hearted relatives are providing liquidity for a growing number of new millionaires and billionaires to exit imaginary money who have provided less than zero benefit or service to our society and are leaving the country to avoid tax payments and taking money out of our economy.
Was following your argument up to that point. Making such a value judgment requires, in my opinion, a lot more data and deep analysis. Cryptocurrencies have the potential of loosening the grasp of oppressive regimes over their people. And it takes those other investors for the process to function.
But, the reality and therefore data is needed to judge whether these new currencies can deliver on that promise.
Edit: Want to clarify that I'm talking about *coin buyers/sellers. Not scam ICO backers. Agree that those folks are scum with negative value to society. If the parent was mainly talking about ICO scams, then please ignore my response and apologies for the misinterpretation.
The claim that someone would prove, of course, would be that they provide value.
So that shouldn't offend you that the null position (and the position which satisfies occams razor) is the default stated position.
Instead of criticizing it, you could actually do the work of proving your claim that crypto has real measurable value to a society. Until that's proven, though...
It is trivial to prove the value, as people are using right now for this purpose.
When the status quo is disrupted, it's perfectly reasonable to assume that it's a passing fad or won't work out. A product or asset, especially a radical step like cryptocurrencies, succeeding and being valuable is the exception, not the rule.
There's a reason accredited investors exist, because they're expected to know better.
The idea that cryptocurrency as a subject of trading changes that in any way is a claim which requires some substantial basis before it would warrant an exception to the general rules written into law.
>>the general rules written into law.
I'm arguing against the principle that we should ban anything not proven to be socially beneficial.
Why do you think that's how it works? Society is not a formal debate, and its members should be able to question any aspect of it at any time for any reason, whether or not they think they have a better idea. The entire concept of "burden of proof" is out the window here since many of its mores do not exist for rational reasons!
For the record, the SEC won't ban cryptocurrency. They want technology (in general) to stay here and potentially evolve into something that can be useful and provide jobs and value someday, so you can still free oppressed nations, but you will need to cooperate with the American government if it's being done on our soil.
Anything that can free people from tyranny must necessarily also be able to free them from the burden of obeying laws. The reasonable standards of conduct have to actually be built into the system in order for it to have a limit on what amount of external control is allowed.
Systems with smart contracts would be able to specify that a government actor could interfere--even retroactively--with any transactions that explicitly opted in to that jurisdiction. So you could sue someone over their Ethereum scam, and a judge could rule in your favor, and then a clerk forwards the order to the technical magicians for the digital circuit court, so that you get as much of your money back as is technically possible to recover.
If you don't opt in, you are in the land of caveat emptor, and the court tosses your case because it can't help you, even if you deserved it. Or people could opt in to private arbitration. But if someone wants their mathmoney to be outside the reach of government enforcement, it is necessarily also out of the reach of government protection. If you won't follow someone else's rules, you can't expect that your untrusted counterparty will follow them, either.
The first state to create a solid opt-in jurisdiction for network-based civil complaints will clean up, just as Delaware has for corporations.
How exactly would that work?!
Oppressive regimes tend to control money flow in/out of the country. So if you, for example, have an aunt somewhere outside that wants to send you money -> you just might not be able to receive it, or would need to give some official a slice of the pie. Bitcoin obviously can help as u can just move the money without government oversight.
Acquiring this "wealth" of crypto would be impossible in an oppressive regime in the first place.
There were actually a few news articles about people in 3rd world countries that survived thanks to btc, though I can't find any at the moment.
Lots of people do person to person transactions.
$65,000 worth of gold is the size of an iPhone X.
The purported censorship resistance of these coins has nothing to do with the shape of the traffic.
There is empirical evidence that this traffic can and does get blocked. Furthermore, many cloud providers stop this traffic.
There are also numerous projects to work around Internet censorship in the crypto space. Such as the Substratum Network (https://substratum.net) and Mysterium Network (https://mysterium.network).
A slight tangent -- you can't just take two options and say we don't have any data so we can't judge. We have a prior: most things do not have an effect in this case.
OP was making a point about how easy it is to produce cryptocoins (in terms of both launching the software, and in terms of measurable capital cost to mine coins).
Coupled with the history of Bitcoin and what has predominately been the demographic attracted to an quasi-anonymous digital token for trading has been anarcho-capitalists who bought drugs and child pornography on TOR and silk road etc.
This comic sums up the point:
The very idea that a random citizen in a modern country can invent their own notion of money is beyond problematic so it is confounding that this whole thing has been allowed to mushroom into what it is today.
Proponents like to drag skeptics into crypto debates but that is far off the mark when it comes to the real implications of the current situation.
Some questions to ponder:
When will the government decide it is illegal to create your own money? will those who have already amassed fortunes (even imaginary) be allowed to keep it? And if so why would the citizenry tolerate such a situation?
What about doing the same with currencies recognised in countries other than the one you're in, is that illegal?
[0] https://en.wikipedia.org/wiki/Rai_stones
[1] https://en.wikipedia.org/wiki/Shell_money
edit: the way I see it, you're advocating against the concept of trading.
Legal tender is perhaps the most important corner stone of a modern nation state, if an entrepreneur can invent their own money and subsume the one issued by a government then you don't have a government. I for one prefer having a government.
This is not a trivial issue as cryptocurrency proponents seem to think it is.
Nonsense. We've had non-political money before. During the free banking era we had thousands of bank-issued currencies that competed in an open market, and the state was alive and well.
The state exists as long as it has a monopoly on force within its jurisdiction. It doesn't need to monopolize the control of money and imprison anyone who has wrong-think about what they consider to be money.
I understand that a lot of people here don't like cryptocurrency and the get-rich mentality around it, but understand that when you call for laws to prohibit various uses of it, you're calling for people to see the inside of a prison cell because they have different ideas about what money is than you.
I don't agree having a non government issued currency means you don't have a government, for one there seem to be a few countries that use the Dollar or Euro as the de-facto currency.
It's radically different from allowing your defacto currency to be one managed by another country, particuarly one that has no common economic interest with yours.
Having alternative currencies doesn't obviate all the benefits of organized representation.
It does not even replace the nation currency unless you think that the national currency is so defective that citizens will collectively choose coins.
Legal-tender laws already prevent non-government currencies from subsuming fiat. Nobody is obliged to accept Bitcoin as payment of a debt, but they are obliged to accept legal tender.
And besides that, there will always be demand for fiat at least for paying taxes.
I'm reminded of Simon & Garfunkel's "The Boxer":
I am just a poor boy
Though my story's seldom told
I have squandered my resistance
For a pocketful of mumbles
Such are promisesAs long as they pay (using real money!) the taxes owed on the economic transactions carried using this alternative currency, I think they will be fine.
I prefer for government to be wholly uninvolved in the matter of decided which assets constitute currency; it seems to me to be an utter conflict of interest.
The government has no obligation to clean up anything. Claiming otherwise is just an excuse to prohibit people from investing into high-risk assets.
>>common people like your grandparents and uninformed but good hearted relatives are providing liquidity for a growing number of new millionaires and billionaires
If the common good-hearted people are too stupid to control their own money, then they should be deprived of the right to vote and other semblances of legal persohood. What you're suggesting, which is to restrict the rights of everyone, is a disproportionate and illiberal response, characteristic of Big Brother states rather than free societies.
And yet, when millions of individual investors lose more than they can afford that's often what must happen to preserve the peace. If Bitcoin went to $100 today, at the very least we'd see a massive hit to unemployment and disability rolls.
If there's no bailout at the taxpayer's expense, what do you suppose will happen? Riots? Revolutions?
Nothing will happen except millions of people learning a much needed lesson.
I don’t think the facts support this. As big as bitcoin’s market cap is globally, it doesn’t actually appear to be causing a lot of employment.
Wealth effects are real [1]. Moreover, I know at least a handful of otherwise-intelligent individuals who used their credit cards to make leveraged Bitcoin plays. At the very least, they'll face collections and potentially bankruptcy as a result of the crypto crash.
Right now Bitcoin lacks the kind of leverage and interconnection with other asset classes that made the real estate crash have a big impact. In that situation, for example, you had banks running 30:1 leverage on some assets, which mean that a 4% decline resulted in a total loss of equity.
I agree. I do not believe the cryptocurrency crash will foment a global economic crisis. I do believe it will create temporary hardships for many Americans, hardships which will in some form flow onto state and federal balance sheets.
The stats I've seen indicate that essentially nobody owns bitcoin when you compare it to other commonly forms of wealth, like homes or traditional equities.
I think one estimate was that less than 500K people - worldwide - own more than one bitcoin, approximately worth $10K. Compare that to the US housing market, where there's 100M-odd homeowners with an average value of ~$220K. Let's say there's 200K bitcoin holders in the US with a bitcoin each, so that's ~2 billion dollars in value vs say 22 trillion in home assets, very rough calc. (And yes, some of those have a lot more than one bitcoin, but some houses are worth more than $220K, and the wealth effect tends to happen breadthwise, primarily.)
Sure they do. It's tasked with the ongoing operation and existence of the country, which can be threatened by economic instability. For example, Albania had a civil war literally over Ponzi scheme failures. https://en.wikipedia.org/wiki/Albanian_Civil_War
> If the common good-hearted people are too stupid to control their own money, then they should be deprived of the right to vote and other semblances of legal persohood. What you're suggesting, which is to restrict the rights of everyone, is a disproportionate and illiberal response, characteristic of Big Brother states rather than free societies.
Slamming "Big Brother states" while advocating for the removal of the right to vote and legal personhood is... special.
Albania is a lawless country where people are murdered across generations in ongoing blood feuds. In such a setting, any major social crisis can trigger a civil war. The solution in Albania is not to restrict private economic exchange. It is to institute the rule of law, by consistently prosecuting crimes like homicide, so that people don't think that extra-judicial violence is an appropriate response to disputes.
There is no chance that a cryptocurrency dropping in value in the West would trigger a civil war, because the rule of law presides in the West.
You're using the violence inherent to Albanian culture, that is independent of any financial phenomenon, as an excuse for putting cryptocurrency traders in prison.
>>Slamming "Big Brother states" while advocating for the removal of the right to vote and legal personhood is... special.
Obviously the comment was not meant to be taken literally, as evident from the comment right after calling the approach "illiberal" and characterisic of police states.
My comment was meant to equate advocacy for removing the right to freely transact with advocacy for the removal of the right to vote. Both are the natural implication of the principle that the subject is too ignorant, stupid, gullible, etc to be given full agency.
Think of it this way: you want the good hearted and gullible people to not be allowed to transact without gatekeepers, but you want them to have the right to vote, without gatekeepers to protect them from demagogues? That's inconsistent.
In other words, I'm saying if you really think the typical person is so incompetent that there should be laws to prevent them from investing into assets that have not been vetted by a government agency, then you don't have enough faith in their competence to give them the right to vote.
Incidentally, the poorest households spend 9 percent of their income on lottery tickets. The fact that this is not only legal, but promoted by state-funded advertising, yet investing in securities issued by non-public companies is prohibited, shows that protecting the public is not the real motivation beyond laws against purchase of non-public securities.
Would you share what government you reference?
The unlawful part is not the technology, it's how the securities are sold. If you sell something that looks like a security, sounds like a security, and smells like a security, and you're violating regulations around securities, then yes, it's potentially unlawful.
You have very little in the way of recourse.
However if they determine that you're illegally selling those securities, you better believe that they can and will come after you, in the name of protecting the little guy.
Really anything that gains value soley due to being promoted would be considered a security SEC v. WJ Howey Co:
> [a]n investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.
1. Someone invests their money
2. In a common enterprise
3. With the expectation of profits from efforts of a third party
As an example of how the SEC interprets these three prongs in application to cryptocurrencies, read their statement on the DAO: https://www.sec.gov/litigation/investreport/34-81207.pdf
If the SEC takes enforcement action against a token, the case would go to the courts, and then the courts would be responsible for deciding if the SEC's interpretation of the Howey Test is valid or not.
If you study the definition of money, and what makes a good currency, there's no kind of money that rises in value merely because you own it. Money is meant to be spent or invested, not hoarded. (Adam Smith's "Wealth of Nations" gives a much better explanation in the first few chapters than I can.)
So, the point that you have to register as a security is the point that you start convincing people to own your cryptocurrency as in investment. At that point, your cryptocurrency isn't money; because money is meant to be spent.
How do you keep the SEC out of your cryptocurrency? Invent a cryptocurrency that functions as money. You will need to figure out how to keep the value stable on a day-to-day and year-to-year basis. That means that the supply needs to expand and contract quickly based on demand. "Mining" based cryptocurrencies can not do this.
If by "certain group" you mean nearly all users then you are correct.
See: https://en.wikipedia.org/wiki/Liberty_Reserve#Criminal_inves...
Why bother using a convoluted blockchain stablecoin rube goldberg machine where you need to jump though several hoops just to use it, when you could use a service like venmo, square, stripe, etc? What use case would justify the need for a stable coin if not for evading the law?
Radix DLT.
NB. Correct me if I'm mistaken, I have little knowledge in this area.
This is a difficult problem that's being tackled by multiple projects, such as MakerDAO[1] (DAI) and Bitshares[2] (BTS). Also less reputable implementations like Tether[3] (USDT).
A good article for more detail is An Overview Of Stablecoins[4]
[4] https://multicoin.capital/2018/01/17/an-overview-of-stableco...
Through the long-settled laws, rules, and procedures used to determine whether anything is a security.
Even though cryptocurrencies are the new hotness, this isn't a new or particularly interesting area of law. The tools for analyzing what counts as a security have long existed.
Do not be fooled by fancy looking "whitepapers", professional websites, and cute mascots.
Whitepapers are bought usually from the lowest bidder who can bullshit technical keyword bingo. This person may not be involved with the company or even know much about the coin itself as often these job listings indicate the project manager themselves knows nothing about the coin they plan to offer except their own personal dreams of wealth. Same with every other part of these ICOs. The daily freelancer job listings are flooded with requests of this nature; I might estimate 1:25 to 1:50 of the offers are for ICO schemes.
Please be very careful.
For example, in "SEC v. Jon E. Montroll and Bitfunder", the individual in question was accepting "investments" in his exchange that were clearly securities (probably fitting the definition of a public offering). He also failed to report a massive theft of Bitcoin and misappropriated customer funds.
This guidance does not claim that Bitcoin or Ethereum are securities.
This is the birth of a new industry. It's unregulated, messy, and the massive amounts of money involved have invited all manner of fraudsters and scam artists - just like the stock market did 100 years ago. There will be a regulatory shakeout and we can all hopefully get back to the business of building a useful ecosystem.
For instance, the SEC threatened to prosecute the DAO [1], which was certainly not a "clear unethical practice", or "flagrant violation" of securities law -- just a bunch of people voluntarily putting their money into a pool to vote on what to do with it. They could even withdraw their money at any time.
[1] https://www.sec.gov/litigation/investreport/34-81207.pdf
I mean... it sounds to me like they did their due diligence. The PDF contains an in-depth look at how existing securities law intersects with what this group was doing. That's exactly what the SEC is supposed to do.
DAOs are new and unfamiliar. They looked at what was going on and decided not to pursue further action. That seems quite reasonable to me.
The DAO was hacked in June of 2016, and the SEC didn't release that article until July of 2017.
https://en.wikipedia.org/wiki/The_DAO_(organization)
When the SEC says:
> The Commission has determined not to pursue an enforcement action in this matter based on the conduct and activities known to the Commission at this time
What they mean is:
> We chose not to beat a dead horse, because it's already dead.
The tl;dr is that they are clearly securities under existing law. Now that the SEC has clarified that fact companies are free to issue Tokens if they comply with the law.
The SEC charged Bernie Madoff's auditors after the scheme had been revealed [1]. In respect of the DAO, the SEC appears to be taking a "wait and see" approach. (With ICOs, on the other hand, we've seen enough.)
I can only judge them based on their actions to date, not what they might do in the future.
Sure, they can pivot into rabid dog mode at any moment, but they’re allowing things to proceed while being aware that it’s gaining more mainstream appeal.
The sort of posture you’re advocating is the same sort of scaremongering as the “this is all a Ponzi scheme that will blow up any day now” types are spewing.
It would be monumentally newsworthy if there was clear guidance that Bitcoin and Ethereum "weren't securities" (more generally: that businesses that simply deal in Bitcoin were generally outside the purview of securities regulation). But we do not in fact know that right now.
No expert believes that you can look at the list of current enforcement actions and reliably predict the SEC's next actions. They could keep taking out scammers for the next several years, getting practice by picking out the low-hanging fruit. Or, they could at literally any moment come down like a ton of bricks on the industry's most mainstream participants. We simply don't know.
What we do know is that "coin-mediated" finance is enabling thousands of people to launch investment-driven businesses who would previously not have been able to do that before, not because of a lack of technical ability but because the laws made it prohibitively expensive. Those laws have not been repealed. A lot of reasonable people are waiting for the other shoe to drop.
Perhaps we can tap the Winklevii's expertise to audit the SEC for malfeasance
If the SEC was going to come down like a ton of bricks they would have done so already. I could be wrong, but their actions seem to demonstrate that they're taking a very measured, careful approach to coming up with a regulatory framework.
My comment was a reaction to other comments, not the statement from the SEC - which actually doesn't say much either.
Could you elaborate? Why do you think that the SEC has made a final policy decision on crypto/ICO?
I definitely wouldn't feel comfortable proclaiming with any certainty that Bitcoin or Ethereum or even ICOs were definitely going to fall afoul of the SEC. My understand is that the SEC is generally a lot smaller than "we" think it is and it's sort of a random function. Cryptocurrency is super important to HN, but the SEC's definition of "systemically important" is different than ours.
Their mandate is to protect unsophisticated investors. That's why they weren't particularly interested in Madoff, and why the rules are so much laxer if you target "accredited investors."
Given that mandate, I think it's highly unlikely that they're going to go after romping, runaway successes. They'll focus on blatant pig-in-a-pokes.
I'm using quotes because that's code for unsophisticated investors, the very group the SEC is supposed to protect.
The SEC refers people to the Howey Test in all of their statements, which is fairly clear guidance that they don't consider Bitcoin to be a security. With something like Ethereum they're not going to say, since something can alternate between being a security and not being a security, so any sort of specific guidance wouldn't be especially meaningful.
It's ambiguous what 'it' refers to (comment vs. the article) in your sentence. If you meant the comment, then I disagree because it doesn't pretend to say something 'important', it just points out that the article doesn't introduce anything new for people doing things that aren't clearly a scam under existing laws.
If you meant the article doesn't say anything important, then I agree and I don't think the comment you replied to says anything different.
Agreed. The main thrust of my comment was that this is a non-article, and yet it seemed to be inviting commenters to lay out their pet theories on the validity of cryptocurrency as though they were validated somehow by the article's contents.
What?
I will admit I initially took offence, though, because I rather like tptacek.
Sorry, I'm a coin skeptic.
If you start badmouthing Canadians, though, different story bub ;-)
The poor can easily invest in a risky venture. Buy into an index fund.
Because they can afford to take the hit if the investment fails.
At least some modification of who can be an accredited investor. Keep the current 200k income or 1 million in non-residental assets. Add some kind designation where you can declare an asset set aside for more risky (accredited investor level) investments and, after a year of sitting to prevent rash decisions, you are allowed to invest those assets in the risky investments. That would at least prevent people from cashing out there IRAs into obvious bubble situations and pyramid schemes and loosing all of their retirement assets. A lot harder for a con man to keep you fooled for a whole year.
Without this rule, grandma and grandpa would be constantly bilked by investing their $50k into bad investments.
>"This exemption protects from disclosure records compiled for law enforcement purposes, the release of which could reasonably be expected to interfere with enforcement activities. Since Exemption 7(A) protects the records from disclosure, we have not determined if other exemptions apply. Therefore, we reserve the right to assert other exemptions when Exemption 7(A) no longer applies,"
> A platform that trades securities and operates as an "exchange," as defined by the federal securities laws, must register as a national securities exchange or operate under an exemption from registration, such as the exemption provided for ATSs under SEC Regulation ATS.
And it says that online wallets may qualify if they facilitate trading:
> Some online trading platforms may not meet the definition of an exchange under the federal securities laws, but directly or indirectly offer trading or other services related to digital assets that are securities. For example, some platforms offer digital wallet services (to hold or store digital assets) or transact in digital assets that are securities. These and other services offered by platforms may trigger other registration requirements under the federal securities laws, including broker-dealer, transfer agent, or clearing agency registration, among other things. In addition, a platform that offers digital assets that are securities may be participating in the unregistered offer and sale of securities if those securities are not registered or exempt from registration.
I, for one, welcome our PonziCoin-banning overlords.
That's a pretty totalitarian outlook. You're not content with not using cryptocurrency yourself. You want to prevent everyone else, with punitive measures, from using it too.
It really doesn't matter if you can trade $10MM of bitcoin for $10MM of ethereum if after doing so you are unable to pay your rent with it.
Throw some KYC/AML laws on accepting cryptocurrency deposits so that it's treated like a cash deposit for regulatory purposes. Accept as a regulator that a lot of small-time stuff is going to slip through the cracks, in exchange for making gross violations problematic.
Like, if you could fit ten million dollars in cash in your pockets, you'd already have trouble getting it into your bank account without a rock-solid explanation as to how you got it. Bitcoin etc is no different - the US government can avoid caring until you try to spend dollars, then nab you for violating regulations.
That's an interesting thought that I hadn't considered. I mean, when we think of trading stocks, we tend to exclusively think of brokerages and the like and forget that at one point in history, it wasn't uncommon to actually hold a stock certificate in a safe somewhere. It's before my time, but I believe you could turn around and sell that certificate to someone else without involving anyone. Were it a straight cash transaction, it would be trivial to perform without anyone but the two parties involved being aware of the transaction.
In the case of a decentralized trading platform, one could trade between crypto-currencies without the ability of the government to regulate it, but once you wish to turn it into hard currency, that's where regulation can step in. What would be more interesting, though, is if the "original promise" of bitcoin -- that it could be used without turning it into cash (buy a coffee with Bitcoin!) -- became a reality. Unfortunately, it's looking like that's headed more and more in the other direction. I have a feeling, though, if regulation steps in hard, there'll be greater motivation to solving the problems that have made this difficult in the past[0]. Combined with some of cryptocurrencies aimed at increasing/providing anonymity to transactions, you start to head more toward a very difficult to regulate set of circumstances that might resemble the difficulties the copyright industries have had attacking file sharing technologies[1].
[0] And while there has been plenty of motivation and I'm aware of some folks actively solving this problem, the motivation among all stakeholders has to be there, as well.
[1] Though the government has far more motivation to solve this problem than it did as it relates to copyright infringement -- I'll admit it's not a great analogy once you start digging into the details.
What matters is if the expectation of profit comes from the efforts of a promoter or third party, not whether the investment is a share of a business.
"We are not regulated by the SEC and any activity here is not protected by any rules and regulations which might apply to a SEC registered company. Please be careful"
Or am i crazy?
No one is buying an ultra rare watch for $10 million in hopes that one day it will be worth less.
and they should probably make that clear; it might (justifiably) shave down their inevitable liability slightly.
They note that they are particularly concerned about customers mistaking something for having the features of a regulated exchange when it does not, but the legal risk and basis for enforcement is not limited to that kind of confusion. So, no, simply announcing that you are an exchange which doesn't comply with the registration requirements won't help, and might hurt.
Not that it's a power grab in the crytpo market.
There are already a dozen in development... pure p2p trading from a hardware wallet...
Unless you're pushing tens or hundreds of millions of dollars around, they'll probably tell you to go pound sand.
Willful money laundering isn't a "simple" risk-reward decision.
The SEC will be interested in the exchange and its staff. The IRS will be interested in individual users' bank transfers.
Money changed hands for me to get that currency -- money paid to the power company and to a few eBay sellers for video cards -- but nothing requiring an exchange fit-for-purpose.
If purchasing with cryptocurrency ever truly becomes a thing (yeah, I know it exists, but it's rare and becoming more rare these days), that will affect the other side, as well.
You think the government won't notice if you buy a lambo and you can't afford it with valid income?
Amazon, Google, Facebook, Microsoft, Apple, and Twitter haven't exactly decentralised their respective areas of operation. Despite no intrinsic barriers (other than the four mentioned above) to decentralised systems developing.
Even Mastodon has largely settled on a small number of very large nodes.
The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not.
The SEC has already made its view clear that many ICOs fall under SEC regulatory jurisdiction. For example:
https://www.sec.gov/news/testimony/testimony-virtual-currenc...
Also, ICOs and exchanges are different beasts, both subject to SEC jurisdiction. This is about regulation of and enforcement against exchanges, not ICOs.
The former represents a significant threat to the stability of American households when a large portion of the population thinks they are “investing” in something that is also not required to follow the safeguards in place for investments. In case you didn’t realize it, there are many many people putting much more money into crypto than they can afford to lose. See credit card purchases on Coinbase for more info.
I’d just assume let stupid people be stupid people, however, when millions of those stupid people collectively lose their money together...it creates huge societal problems and strain on government services which you and I have to pay for...with US dollars of course.
This differs from Bitcoin, which is not issued by any company and has no central organization that does any work or promotion of the token.
The response from American cryptocurrency exchange Bitfinex expresses the distinction between securities and other types of tokens:
“As a U.S.-based digital currency exchange, Bittrex is committed to incubating new blockchain technology projects and offering innovative, compliant digital tokens to our customers. Bittrex uses a robust digital token review process to ensure the tokens listed on the exchange are compliant with U.S. law and are not considered securities. Bittrex is committed to helping advance the United States’ global leadership in this emerging industry, and we look forward to continuing our proactive dialogue with the SEC and other regulators on how to build a secure, fully-regulated environment for blockchain that encourages innovation and economic growth.”
https://support.bittrex.com/hc/en-us/articles/360001525152-B...
They seem to be prepared to meet the SEC in court to argue that the assets they facilitate trading for are not securities.
Given the amount of money that is traded every day at crypto exchanges the statement from SEC was expected, but they seem to think that the crypto markets are too important (too large) to go the Chinese way - to shut down crypto exchanges that do not comply with basic rules that all exchanges should follow. But maybe this is just a warning and they will do it later, who knows...
Like using webapp, app and program interchangeably "well they all run on computers right?"
1. All US based exchanges require FinCen registration
2. Most states require a money transmission license
Before choosing an exchange, ask to see their FinCen and state licenses. Coinbase's licenses, for example, are posted publicly:
Edited for clarity.
It's important to look back on Flash Boys and recognize the reality of regulated exchanges. Ultimately consumer demands will drive the ethical operation of any exchange.
https://twitter.com/nathanielpopper/status/96820257071911731...
Does anyone have a list of exchanges that are registered?
-- Phil Connors, Groundhog Day
I could imagine jail time for the developers for knowingly supporting illegal activity would seriously dampen enthusiasm from the open source community. Also, depending on how decentralized such an exchange is, this would expose its customers to the same type of consequences (or possibly "just" large fines). It would not be too difficult to pass a law prohibiting consumers to knowingly trade on non-registered exchanges I'd think. (Possibly this is already illegal in your particular jurisdiction, IANAL)
It would be a direct affront to the First Amendment, and it would be remarkable if the US government ever did this to anyone residing in the US, let alone someone residing in other countries where different laws apply.
I could maybe see the Chinese government taking such action, but it has much less influence globally than the US, and a relatively small portion of open source contributors reside in Mainland China.
>>It would not be too difficult to pass a law prohibiting consumers to knowingly trade on non-registered exchanges I'd think.
Such a law would be widely ignored. Just look at illegal filesharing.
Ultimately digital currency will force the US to decide whether it's a free society, or whether it mandates that people transact through centralized gatekeepers. Hopefully it will choose the former.
It is very clear to me that SEC has no idea how any of this works under the hood and does not understand in which way the crypto ecosystem is headed. I feel like they ought to work more tightly with the industry's thinkers in order to create some more meaningful guidelines.
The SEC can't just blanket C&D every single crypto exchange; they have to go one at a time. This is a clear message that they're going to do just that, especially when coupled with all the enforcement they're doing.
Bitcoin is probably not a security. Something like tether or filecoin probably is.
What you're looking at is not a press release, it is what's called "administrative guidance" (https://en.wikipedia.org/wiki/Administrative_guidance) -- a regulatory agency laying out its interpretation of how existing laws and regulations apply to a given situation. Regulators do this to remove ambiguity, so regulated parties know what the agency expects them to do in order to stay on the right side of the law.
In this specific case, the SEC is advising crypto-based operations calling themselves "exchanges" that this is a word that has a special legal meaning, and that therefore if they want to continue calling themselves "exchanges" they either need to comply with the same licensing requirements that apply to other "national securities exchanges," or demonstrate a good reason why those requirements don't apply to them. (And not just to crypto in general, to their specific operation in particular.)
The reason this matters is because, now that the SEC has officially gone on the record with this statement, crypto exchanges can't say they weren't warned if they continue using the term and the SEC comes after them later. This statement is their warning that they need to either get licensed or stop calling themselves exchanges. If they choose to do nothing and just keep on calling themselves exchanges, and the SEC takes them to court over it, they won't be able to argue that they didn't know what they were required to do to use that term. The SEC has just told them what they need to do. The ambiguity has been removed.
Really? I didn't get that reading at all. The discussion of the use of the word "exchange" is under the guidance for investors, not the guidance for trading platforms.
The guidance for trading platforms specifically talks about which assets are being traded and how determining what type of registration is required (national security exchange, ATS, broker-dealer, transfer agent, etc...)
"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. "
But that just underlines my main point, which was that this document is a lot more than just a press release.
It is not necessary. Do you really think your random internet comment will be considered legal advice?