The Securities and Exchange Commission of the US is one of the most important organizations when it comes to regulations around cryptocurrencies in the country. Much of what happens in the cryptocurrency community is often attributed to the SEC - and rightly so. The organization’s decisions for or against an issue may bring forward major changes in the price of the cryptocurrencies and can impact the market positively or negatively.
It has been observed over the months that certain verdicts of the SEC have resulted in the markets forming a bullish or a bearish trend. Let us take a closer look and observe some of the classic cases where the SEC verdict has caused an uptick or a downtrend in the cryptocurrency markets.
A Look At How SEC Verdicts Impact Market Momentum
Here’s a closer and chronological look at some of the decisions of the Securities and Exchange Commission - and its impact on the markets.
July 2017: DAO Tokens Announced To Be Illegal Securities
Decentralized Autonomous Organizations (DAOs) had been a cause of major controversy in 2017. Following a major controversy where $60 Million out of the ICO-raised $150 Million were stolen by hackers, the SEC decided to rule that since DAO tokens were securities, and since they had not registered with the SEC beforehand, they are illegal. This led to the start of a momentum following which the SEC deemed a number of other similar unregistered tokens as illegal and had them pulled off.
Following this announcement, the cryptocurrency markets went through a sudden downtrend where the top 5 cryptocurrencies fell, with Ethereum having been impacted the most at a 10% drop.
February 2018: Joint Hearing Give a Nod to Cryptos Being Important
By the February of 2018, the markets were already red and every major currency had gone through a significant fall in price. However, in a joint hearing where the Commodities and Future Trading Commission (CFTC) and the SEC come together, the two explained their views on cryptocurrencies, the blockchain technology, as well as ICOs. It was a rather optimistic approach from the organizations. Both the organizations praised cryptocurrencies and gave their nod of approval.
This resulted in a strong bullish momentum where cryptocurrency prices recovered for a brief period of time. While almost the entire cryptocurrency market lit green, Bitcoin and Ethereum had a significant impact where the currencies rose by 20%. However this momentum didn’t last for long following China’s reduced tolerance towards cryptocurrencies and rumours of a cryptocurrency ban which emerged during the Indian budget.
March 2018: SEC Warns That Crypto Exchanges Need to Be Registered with Them
Following the month that the SEC gave their nod of approval to cryptocurrencies, the organization issued a public warning to cryptocurrency exchanges, reminding them that they need to be registered with the SEC. More specifically, this was aimed towards platforms which deal in securities. The warning issued by the organization read:
"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."
This led to a number of cryptocurrency exchanges in the US complying with the Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. This led to a slight downtrend where Bitcoin fell by 8.6% - however, while the fall wasn’t really of much importance, the fact that this led to Bitcoin falling below the $10,000 support level caused major panic in the markets.
June 2018: Bitcoin and Ethereum Are Not Securities
SEC Chairman Jay Clayton issued a statement in June 2018 confirming that Bitcoin and Ethereum, two of the top cryptocurrencies by market capitalization are not securities. The reasoning that Clayton gave for this statement was that major international fiat currencies such as the US Dollar, Yen and the Euro can all be replaced by Bitcoins for payments as they are rapidly becoming an acceptable means of payment. Hence, it is not a security.
Following that statement on Bitcoins, William Hinman, the director of the SEC’s division of corporation finance confirmed that Ethereum is not a security either. While the SEC considers almost every ICO to be a security, the organization has made it crystal clear that Bitcoin and Ethereum are two cryptocurrencies which do not fall under that bracket. This didn’t lead to any major surges in the price of the currencies but a small uptick was seen in the price of Bitcoin, which shot up by almost $300.
July 2018: Winklevoss ETF Application Rejected For The Second Time
The SEC has been getting a number of requests related to Exchange Traded Funds (ETFs) over the past few months. This includes some of the most credible names in the world of cryptocurrencies, such as the Winklevoss Twins. However, even their request was denied by the SEC as it stated that the industry isn’t really ready for a crypto-backed ETF just yet.
The first time that the Winklevoss Twins had urged the SEC to approve of a crypto-backed ETF was back in 2013 and it took the organization four years to finally come up with a decision on that in March 2017, which was negative. Another request has now been struck down. The Winklevoss twins stated that Bitcoin is “inherently resistant to manipulation,” and hence crypto-ETFs should be considered. However, following the refusal of the SEC, the markets felt the pang of denial as the price of Bitcoin fell by over $400.
August 2018: VanEck SolidX ETF Request Postponed
The SEC has had quite a liberal view towards most things in the cryptocurrency economy. However, Exchange-Traded Funds (ETFs) do not enjoy that privilege. As seen in the past with the multiple requests made by the Winklevoss twins, the SEC continues to strike down the ideas of setting up a crypto-backed ETF. Earlier this month, VanEck and SolidX came together to request the SEC to set up a crypto-backed ETF. Their request has now been postponed till the 30th of September and is highly likely to meet the same fate as that of Winklevoss’s.
There have been many speculations that this is perhaps the strongest chance of an approval so far, considering that it wasn’t based on any assumptions, but on actual ownership of Bitcoins. VanEck as well as SolidX have claimed that since the firms will actually hold Bitcoins, losses and theft are not to be worried about. However, the SEC has now announced an extension for their final decision, which is now expected to come out on the 30th of September.
Following this announcement, cryptocurrency markets collapsed by 12%. The worst hit was Ripple, which slid by as much as 23% following the news.
While the SEC alone cannot be pinpointed as the sole reason behind every rise and fall in the cryptocurrency markets - and there are several economic, social and geopolitical events which also influence the price of cryptocurrencies, the SEC does exercise a great amount of power over the cryptocurrency markets, as is evident by the aforementioned examples.