Cryptocurrency Jumps the Shark with SEC Announcement

Earlier this month the Securities and Exchange Commission approved the listing and trading of bitcoin as exchange-traded product — an investment vehicle listed on an exchange and can be bought and sold throughout the trading day like a stock. But this doesn’t signal a new era for digital currencies. It’s more like a challenge.

For those waiting for the day when all financial transactions are conducted through the blockchain, sit back and get comfortable. We’re not there yet. The SEC action does not signal an embrace of cryptocurrency and the federal agency is clear on its ongoing concerns regarding digital currencies.

In a statement posted on the SEC website, Chairman Gary Gensler makes it clear the decision is strictly limited.

“It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities,” Gensler said. “Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws.”

What it does signal is that cryptocurrencies are primarily investments, not a universal medium of exchange. And as investments, they are subject to the rules and regulations all other investments must adhere to.

This is a big change for the mystique of digital currencies as something outside the reach of government regulators, existing in some kind of financial state of nature. And just as individuals give up the absolute freedom of action in the social state of nature in exchange for security and the rule of law, regulatory oversight for digital currency is likely to be a game changer. It is also a challenge.

Can crypto investors thrive under the constraints of strict standards and practices? Will bitcoin and other digital dollars lose their allure now that they have become more mainstream? And most importantly, can regulation prevent fraud and manipulation in crypto markets?

If Gensler’s comments are any indication, it is going to be a tough row to hoe.

“Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion and terrorist financing,” he said. Additionally, Gensler took aim at the influence of social media in hyping cryptocurrencies and keep a level playing field for investors.

The SEC action also takes aim at crypto exchanges, indicating a sea change in official interest in how those markets are run.

“(The) action does not approve or endorse crypto trading platforms or intermediaries, which, for the most part, are non-compliant with the federal securities laws and often have conflicts of interest,” Gensler said in the SEC statement.

So, what does this all mean for digital currencies?

For those potential investors interested in the world of the blockchain and digital assets, it opens the door to a safer trading environment. That could attract more mainstream investors and create a solid financial foundation for cryptocurrency. It could also result in a culling of the herd of fly-by-night digital currency operators and schemes, giving legitimacy to those digital assets that follow the rules.

But it could also reveal to the world what is behind the curtain in the land of cryptocurrencies and show just who is pulling levers. And without that air of mystery and allure, digital assets may end up being just another way to make and lose money.