Crypto regulation is here. Last week a rumor by the SEC caused the market cap to drop nearly 30% just in few days. On march 7th ruling from the court of New York with the CFTC assessment that crypto's are the commodities and should be regulated like commodities. Coincidentally on the same day the SEC release the statement with their take on how crypto should be treated and regulated.
In a public statement the SEC comments were made by Chairman John Clayton back in December in which he strongly advice crypto platform to get register with SEC, if the want to continue doing business in United States.
Now you might be thinking what is the difference between SEC and CFTC . Well, Securities and Exchange Commission (SEC) administers and enforces federal laws that govern the sales and trading of securities, such as, stocks bonds and mutual funds. This differs from the Commodity Future Trading Commission or CFTC which regulated commodity future and auctions markets. Commodities are things like raw materials, or primary agricultural products that can be bought and sold on open market , think of things like copper or coffee. Now the important point is that the CFTC only had enforcement authorities over spot trading of commodity future but they don't have over site authority . This means they can only punish bad behavior after it's happened but cannot make new laws prior to any wrong doing.
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So the CFTC says one thing and SEC says another so what are crypto's are they securities or are the commodities. Well there is sort of this new class that the regulatory bodies in United States are having a tough time classifying and other countries around the world sort of waiting for the US to take lead at taking out how to classify. This sort of unknown factor is a bit of a mis-step by the US Government. These regulatory bodies has to know how to enforce laws and how to act with regards to crypto. Because if they don't it will just be more lawsuits.
But what was about the SEC that cause the crypto market to tank heavily. If you recall the SEC had already made it stand on the cryptocurrency in the statement released the last December. In that statement SEC chairman John Clayton had said on cryptocurrency's once emphises two points:
- There are cryptocurrency that do not appear to be securities, simply calling something a currency or a currency based product that doesn't mean that it is not a security. Before launching a cryptocurrency or product with its value ties to one cryptocurrency it's promoters must either able to demonstrate the currency or the product is not a security or comply with ac-table registration under securities laws.
- The SEC left no room for any duty. Weather the crypto is offering for exchange or platform to exchange cryptocurrency's an ICO or ICO adviser or just the service provider all offering digital wallets, it has to register with SEC or with other regulatory bodies.
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As the news came out every one in crypto took the time to understand what the SEC statement meant. In typical crypto fashion market drop almost 20% over night and continued to drop significantly in next other days. As most people reacted to the news rather than reading through the SEC's statement understand what they were saying what the significance of he statement was.
Regulation or the fear of regulation has a same effect on the stock market as well. Negative news tends to slay the market however it does look like a it has much better affect in the crypto market in this SEC statement is the perfect example for that. What will happen if the regulation comes in full force against this bad actors.