The U.S. Securities Exchange Commission (SEC) and the Cyberspace Administration of China (CAC) made official announcements regarding new regulation and examination of the crypto industry. Both press releases express the shared concerns of the agencies in regards to compliance, fraud, security, and investor protection. Given the volatility of the crypto market caused by alleged price manipulation and scams, both governments’ stance seem determined to bring some form of control into the crypto ecosystem. Unfortunately, in their statements, both regulatory bodies have ominous overtones in their vision to achieve that control. We could be looking at an extended winter if this becomes reality.
The SEC’s message spared no one; it contained vailed warnings against developers, marketers, exchanges, and custodians of digital assets. The meat of the document summarized the identification of “market participants offering, selling, trading, and managing these products or considering or actively seeking to offer these products. OCIE will conduct examinations focused on, among other things, portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance, and internal controls.“ In no certain terms, this is a warning to all participants that the agency will continue to monitor the sale, nature, and managment of crypto-based assets.
On their part, China’s approach will be far less unforgiving. The new legal structure demands absolute compliance to strict rules regarding blockchain-based operations and user data management. In a regularoty final draft to take effect on February 15, 2019, (translated in a CCN article), the agency orders all Blockchain service companies to:
- Register with authorities within ten days of providing the service.
- Report new products for “safety assessment in accordance with relevant regulations.”
- Record and log user activity.
- Verify users based on their national ID and phone number.
- Maintain backups for at least six months.
- Hand over the data recorded over to the authorities when requested.
- Issue warnings to users, restrict and close accounts, and report violators.
- Submit to periodic inspections.
- Not use blockchain information services to engage in illegal activities that endanger national security, disrupt social order, and infringe on the legitimate rights and interests of others.
- Maintain censorship of information not intended for the public.
Just when it seemed that governments were noticing the averse effects stringent regulation is having on the crypto space, more restrictive regulation appears. These news couldn’t be more detrimental to the advance of Bitcoin in general. The threat of prosecution will affect innovation, development, promotion, trading, and adoption. Companies will be the most affected if they are forced to disclose client in order to conduct international business. China represents a major market in danger of being isolated and controlled by its authoritarian government. And should India, the EU, and Australia adopt similar regulation, it will signal the end of crypto as we know it. It will also guarantee that the Bear market will stay for years to come.