Early this week, top US financial regulators have had their say on trading cryptocurrencies, and have warned investors of the risks surrounding them. They use Bitcoins latest price surge as an example of the volatility that surrounds them.
Jay Clayton, chairman of the Securities and Exchange Commission, was keeping a close eye on ICO’s, a move that was then followed by a warning from J. Christopher Giancarlo, who is head of the Commodity Futures Trading Commission, who stated that the agency would not be able to protect investors in a lot of cryptocurrency trading venues.
Regulators are becoming increasingly worried about retail investors putting money into volatile cryptocurrencies, especially since Bitcoin exchanges have struggled to cope with the demand.
Clayton spoke about the Bitcoin futures products that were introduced on Cboe Global Markets, saying;
Just as the SEC has a sharp focus on how US dollar, euro and Japanese yen transactions affect out securities markets, we have the same interests and responsibilities with respect to cryptocurrencies”.
Giancarlo also added that investors should be aware of the high level of volatility and risk, saying;
“The relatively nascent underlying cash markets and exchanges for Bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority.”
The SEC is also clamping down on ICO’s, which led to Munchee, a food review app to cancel its ICO, which was aiming to raise $15million. The decision was made after the commission warned that its token constituted an unregistered security.
The SEC released a report in the summer, which explained that an ICO implied that if investors expected a return, it would be considered a security – something that has caused a lot of confusion. Many ICOs claim that they are offering a ‘utility’ token, which will eventually have value that can then be exchanged for goods or services; however, this can be subject to security laws in the US.
Clayton spoke on the matter, saying;
“Merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security…the structures of initial coin offerings that I have seen prompted involve the offer and sale of securities”
However, he did add;
“Whether they represent offerings of securities or not, can be effective ways for entrepreneurs and others to raise funding.”.
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