|The hiccup at Binance may not have been the reason for the sell off. I came across this after I posted the article:|
Bitcoin falls 10 percent after SEC warns about unregulated exchanges
Bitcoin falls 10 percent after regulators signal crackdown on exchanges.
Timothy B. Lee
3/7/2018, 11:50 am
The Securities and Exchange Commission issued a strongly worded warning on Wednesday about the risks of dealing with unregulated cryptocurrency exchanges.
"The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not," the SEC statement said.
The announcement triggered a sharp selloff in cryptocurrency markets. Bitcoin's value plunged 10 percent, from $10,600 to $9,500, in the hour after the announcement was posted. Ethereum, Bitcoin Cash, Litecoin, and other major cryptocurrencies all suffered significant losses.
Prior to the fall of 2017, the SEC largely ignored the nascent market for cryptocurrencies. But in 2016 and 2017, there was a growing craze for "initial coin offerings," many of which were uncomfortably similar to stock offerings, which are only supposed to be conducted under strict SEC rules.
So in recent months, the SEC has stepped up its enforcement activities, shutting down the most obviously fraudulent ICOs and warning the public that stricter regulations were likely to follow later. Now the feds appear to be getting ready to rein in cryptocurrency exchanges, an important part of the ICO ecosystem that has, until now, operated largely outside of the law.
"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," the SEC writes. "Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select.
"Many of these platforms give the impression that they perform exchange-like functions by offering order books with updated bid and ask pricing and data about executions on the system," the agency added. "But there is no reason to believe that such information has the same integrity as that provided by national securities exchanges."
Conventional exchanges have strict rules to prevent insider trading and other forms of market manipulation. While some cryptocurrency exchanges have similar controls, others don't, and right now many operate with no real government oversight. The SEC is signaling that it plans to change that.
The sharp sell-off following the announcement suggests that many traders see the announcement as a big negative for the cryptocurrency world. And it's not hard to see why. The cryptocurrency boom has largely been driven by the craze for ICOs—many of which might not pass muster with the SEC. If the SEC starts insisting that exchanges drop tokens that amount to unregistered securities, it could quickly deflate the value of many of those tokens—and also destroy enthusiasm for future ICOs that could run afoul of the same rules.
Yet most experts believe that some of the most important tokens—including bitcoin and Ethereum's ether—are not securities under SEC rules. So while stepped-up SEC enforcement might depress cryptocurrency prices in the short run, the market could ultimately emerge from the process stronger than ever.
Timothy B. Lee Senior tech policy reporter
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So if the experts don't believe that bitcoin and etherium are securities...
What are they?
Why aren't they?
How does that make them "stronger"?
Sorry I could have explained this better.
Experts typically draw a distinction between "security tokens" and "utility tokens." A security is an asset that gives its owner a share of a joint profit-making enterprise like a share of stock. A utility token is a token that people buy for some other reasons—like in the case of bitcoin this might be to buy drugs or products from overstock.com.
I explained this in some detail last year: https://arstechnica.com/tech-policy/201 ... e-all-bad/
The concern is that once the SEC starts classifying certain tokens as security tokens, the next step could be fining those projects or shutting them down altogether. And at a minimum it will probably mean shutting down a lot of exchanges that deal in those tokens.
In contrast, because Bitcoin is (probably) not a security, exchanges that only trade in bitcoin will probably be allowed to continue operating, and there's no real prospect of a crackdown on bitcoin itself.
Timothy B. Lee Timothy is a senior reporter covering tech policy, blockchain technologies and the future of transportation. He lives in Washington DC. Email firstname.lastname@example.org // Twitter @binarybits