A lot of people are wondering how long it will take for the Bull market to return. The eerie stabilization of the market in the mid to late 2018 proved to be false and the market decline deepened. Among other things, that price drop correlated with aggressive enforcement by the SEC. Citing securities law violations by rogue exchanges, ICOs, and individuals, SEC penalties sent shockwaves throughout the crypto space. The result was massive sell offs starting on November 12, 2018. In addition, it also led to the quick exit and/or pause from developers, venture capital, institutional, and retail investors. In effect the SEC slammed on the brakes of the crypto ride and threatened innovation. The problem is that the ride can’t continue until the SEC gets a grip on the myriad of variables that directly and indirectly represent violations.
The biggest beef the SEC has against Crypto is the treatment of cryptocurrencies as securities. The issuance, selling, buying, trading, and owning of all crypto is deemed dubious in the eyes of regulators. And now the problem is becoming exacerbated by margin trading. Multiple exchanges like Bitmex, Poloniex, Kraken and others already offer it, and the list of assets available for this type of trading is growing. The SEC tries to manage the exposure to American investors but international traders are off limits. However, the San Francisco based exchange Kraken has been the focus of intensive scrutiny by the SEC. And the effects are that developers and traders seek compliant forms of digital assets.
STOs – tokenizing assets
Security Trading Offerings are digital shares of a company or tangible assets like precious metals, real estate, intellectual property, etc. Unlike ICOs, STOs are structured as a form of complaint securities since their inception. This avoids unwanted legal queries but they present a whole new list of problems for regulators. Primarily, how to create universal regulation that accounts for the different classes of assets. Also, how to reconcile securities laws with commodities, assets, taxes, etc, and how to implement them without killing the market.
The market depends on innovation; without creation, crypto is nothing more than 2,000 versions of a glorified database. The ruthless approach demonstrated by the SEC is entirely counterproductive to innovation and contrary to international trends. In Switzerland, the prevailing ideology is the development of an optimal [regulatory] framework conducive to innovation. The UK monitors the market with little interference. By contrast, U.S. regulators see cryptography in currencies as an inherent threat to the establishment.
Another perceived hurdle to the SEC is unbounded innovation. For example, privacy features in dark coins are praised highly by the Bitcoin community but frowned upon by governments. To make matters worse for regulators, development in this are continues unabated. Besides ZKsnarks, Bulletproof, and Mimblewimble, there are other emerging protocols like Dandelion that seek to further enhance privacy. The problem is that they are not compliant. Therefore, the rising number of non-compliant projects will add to the workload of regulators.
Markets and innovation are moving faster and faster away from the SEC. Shortsighted enforcement and lack of understanding is creating barriers to the development of a free crypto market. And while a few favor some form of regulation, the majority in the crypto community resent it. In an effort to stem and control the flood of ICOs and impose compliance, the SEC is shutting down the market. In essence, it is taking the ball away and holding it unless all the players play by their rules.