Last week was controversial, with Bitcoin rarely leaving the front pages of the mainstream media. Now this week, key U.S. investment regulators the CFTC and the SEC both instigated investigations into the cryptocurrency industry that may have far reaching implications.
These developments come on the back of a blanket ban on ICO fundraising in China, muted endorsement for Bitcoin from Goldman Sachs CEO Lloyd Blankfein, and a tirade from Jamie Dimon (which most were willing to dismiss as either an uninformed rant, or a diversionary tactic to obfuscate JPMorgan & Chase’s 20 percent year-on-year drop in trading revenue).
But just as the China and Dimon news was being forgotten — the BTC price recovered fairly quickly — news came that the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have started investigations into two different practices, sparking renewed headlines and speculation.
More Tokens Defined as Securities
According to an (unvalidated) post on stockemperor.com, the SEC identified a number of listed offerings as being securities, prompting leading exchange Bittrex to delist DAR, BATA and BTS. It also fueled rumors that a further industry-wide crackdown is coming. It said:
“The reason behind this purge is SEC demand to stop these coins from being offered by Bittrex, because they are securities.”
While the report offers no substantiative proof, it has been rumored in recent months that Bittrex had “lawyered up” . Also, the delisting of some coins seems to suggest that having a “buyback” feature qualifies a coin as a security under the SEC’s guidelines.
Bittrex’s Julian Yap seemed to address the report in a tweet:
Still, the effect was rapid on the prices of the delisted coins — and the drop also flowed into other coins that resembled the delisted ones, such as APX. Its team issued a statement announcing the dropping of its “buyback + burn” feature and plans to refocus on other use cases instead.
In the second piece of enforcement action, the CFTC announced it is investigating the June 2017 Ethereum “flash crash” on Coinbase’s GDAX exchange. It saw prices cascade to just .10c after a single $12.5 million USD sell triggered a multitude of stops.
The CFTC has sent Coinbase a list of questions relating to GDAX and its margin trading policy. The cryptocurrency focused company issued a statement saying that it “complies with regulations and fully cooperates with regulators … but was unaware of a formal investigation.”
Is There an Agenda Behind Regulators’ Activity?
The relatively short timeframe over which these events have occurred may suggest an ominous short-term future for cryptocurrencies. Some believe that Dimon’s comments, his influence in the financial, political and regulatory environment, and the subsequent SEC & CFTC statement are no coincidence.
The theory behind this is that the big Wall St. players want to dominate the burgeoning crypto industry, and will do this by pushing for regulations to exclude others from entering into the area where they can most profitably provide services.
This would be sold to the public under the auspices of protecting them from losing money. Trumpeting a supposed problem and then riding in to rescue innocent victims is the modus operandi of regulators, playing on the fears of the public and the notion that the “authorities” have the best interests of the public at heart.
Although cynical and maybe even conspiratorial, the theory suggests that Wall St. is aiming to “take back” the crypto market from global free, laissez-faire market forces, attempting to give themselves an oligopoly of sorts in the accredited investor realm.
It certainly makes at least some sense. We touched on the topic back in August with the piece “Is Government Clearing the Way for a Wall St Cryptocurrency Takeover?” and subsequent events have only firmed that belief.
Government Will Find Some Way to Control Bitcoin
Well known Bitcoin critics like Jim Rickards have long suggested that although the prices may increase short-term, at some stage the U.S. government will step in, regulate and decimate the industry. But not by banning it outright.
“Governments don’t want to kill it; they want to control it … they seek to do so using powers of regulation, taxation, investigation and ultimately more coercive powers.”
As per usual, not a week goes by in Bitcoin that doesn’t see some kind of controversy. However it seems relatively certain that, as cryptocurrency goes mainstream, the jostling for position between regulators, financial institutions, incumbents and the public will only continue.
Is this the way Wall St. and the government seeks to handle cryptocurrencies? Let us know in the comments.
Images via Wikipedia, Pixabay