Age may be bad for small, illiquid cryptos, it’ll be great for bitcoin and other mainstream cryptos. THE SEC PROBLEM Recently, the U.S. Securities and Exchange Commission (“SEC”) has been ramping up pressure on crypto exchanges. In April, the SEC released its “Framework for ‘Investment Contract’ Analysis of Digital Assets.” The long-awaited document was supposed to give “plain English” guidelines on how to determine if a crypto is or isn’t a security (a financial instrument like a stock or bond designed to produce profits). But not everyone agrees on how to interpret the SEC’s framework. For example, by some interpretations, the framework says that every crypto (besides bitcoin and Ethereum) could be considered a security. If a crypto can be defined as a security, U.S. law says it must be registered with the SEC before it can be sold. If it isn’t, then the issuer is breaking federal law by selling an unregistered security. And exchanges could be targeted for letting customers buy and sell those unregistered securities. So different exchanges are listing – and delisting – different cryptos. Not only does this create risks for the exchanges... It creates risks for investors. Imagine buying a crypto on a U.S. exchange and then learning soon after that the exchange delisted that crypto. Prices for that
crypto would likely collapse. Now, most cryptos aren’t really securities. Some contain aspects of securities, but that’s often a small component of their overall functionality. That’s why we support the idea of new regulations that exempt cryptos from securities laws. For now, though, exchanges have to decide whether to ignore the SEC, limit the cryptos they list, or block U.S. residents entirely. Binance intends to come into compliance with U.S. securities law, so it will limit its offerings. Bittrex and Poloniex also recently moved to block more than 40 cryptos from U.S.-based traders. This is just the beginning. We expect to see a growing number of exchanges block cryptos and U.S. investors. PREPARING FOR TURMOIL Exchanges must now balance two opposing forces: the need to make money and attract customers, and the need to avoid regulatory trouble with the SEC. It’s a balance between risk and reward. Playing it safe by only listing a handful of cryptos makes it hard to attract new customers. But listing a questionable crypto – and attracting new customers – could get an exchange in trouble with the SEC. So many popular exchanges are choosing to limit the cryptos they offer. Now, this doesn’t mean you need to sell cryptos that aren’t available on mainstream
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