Brad Garlinghouse, the CEO at Ripple, a blockchain company that oversees the $32 billion Ripple network, stated that the market has demonstrated an outsized reaction to the announcement of the US Securities and Exchange Commission (SEC).
SEC Requires Exchanges to Register
On March 7, the SEC noted that cryptocurrency exchanges and digital asset trading platforms must register with the SEC in order to run an infrastructure that allows consumers to trade tokens, which the SEC has recognized as securities.
The SEC wrote in a public statement entitled “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets:”
“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 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.”
In response to the market’s reaction to the announcement of the SEC which led the value of most cryptocurrencies to fall by large margins, Garlinghouse noted that cryptocurrency exchanges have the option to de-list ICO tokens or simply register with the agency, and that the SEC’s regulation does not hugely impact cryptocurrency trading platforms in a negative manner.
“More My POV on the SEC statement today – the market is having an outsized reaction. Exchanges ultimately have three options ahead of them: de-list ICOs, register, or close. Certainly big implications for ETH given ERC20 tokens,” said Garlinghouse.
Did SEC Cause the Recent Correction?
The recent market correction that led the price of bitcoin to drop to $9,000 and other major cryptocurrencies to experience a drastic fall in value was caused by three major factors: massive sell-off of bitcoin by the Mt. Gox trustee, the SEC announcement, and the Japanese government’s penalization of local trading platforms.
Hence, it is highly unlikely that the announcement of the SEC solely caused the market to drop by more than $70 billion overnight. On March 6, the valuation of the cryptocurrency market reached $470 billion. As of March 8, the valuation of the cryptocurrency market remains below $380 billion.
As Garlinghouse emphasized, the SEC’s decision to require exchanges to register with the agency for listing ERC20 tokens or ICOs only impacts tokens launched on top of the Ethereum network that are considered as securities by the SEC.
On February 6, in a senate hearing, SEC chairman Jay Clayton noted that there exists a clear difference between ICO tokens and cryptocurrencies. Clayton explained that while ICOs are securities, others are “true cryptocurrencies.”
Given that most cryptocurrency exchanges are already well regulated and registered with both federal and state government agencies, it is unlikely that the recent announcement of the SEC will have a major impact on the market in the mid-term.