update 19 August 2021

Securities Exchange Commission (SEC): The US Watchdog on Cryptocurrencies

Investors across the globe have always avoided the crypto market for its baffling qualities. The crypto world is renowned for its volatile prices that can ordinarily see prices fluctuate by a margin of up to 20%. It is for this reason that large investors are skeptical about joining the market. It is quite common to sleep a rich man and wake up impecunious as you lost all your wealth.

However, the United States Securities and Exchange Commission, SEC, to join the industry might change the perception of investors globally. This guide will help you understand about changes that starters will experience after the SEC announcement.

Securities Exchange Commission (SEC)

The main reason why fiat currencies are prevalent across many countries is that they all have a regulating authority. Unlike virtual money, also called digital cash, traditional money is regulated through a central bank and poses fewer scamming risks. In 1929, the American people lost confidence in the government after the stock market crashed.

For this reason, in 1934, the government established the Securities Exchange Commission to help prevent a similar situation. The primary role of the commission is to ensure the fairness of all players in the industry. It ensures that companies on the market provide accurate details to the investors.

The Securities Exchange Commission is thus an independent government agency entrusted with the role of monitoring the securities market. The commission helps protect investors from companies that may be failing but still providing inaccurate dealings. Such companies would scam investors who may blindly invest only for the ventures to fail.

How SEC Might Change the Crypto Market

Reduced Volatility

The SEC regulations are likely to reduce the famed volatility of Bitcoins and other altcoins. This change will have the massive profits experienced in the crypto transactions come to an end. Nevertheless, even with the reduced earnings from volatile prices, more players may join the market. Crypto markets may have to forget the days of massive returns.

According to Polymath CEO Chris Houser, these regulations will see the market transactions turn similar to conventional sources. Institutions may join the crypto industry as the volatility means they have more confidence in cryptos. Also, some of the investments from some of these corporations may, in turn, translate to millions of dollars. For instance, companies such as Vanguard and Fidelity handle a lot of money that would bring in millions of profits if invested in the cryptocurrencies market.

Creation of Viable Alternatives

It is common for Initial Coin Offerings, ICO, to fail as soon as clients commit their funds. Most ICOs do not provide supporting documents to prove their viability. As the coins do have any supporting documents, investors are highly prone to falling for scammers compared to other investment alternatives.

SEC joining the market will make ICO/IEOSTO offerings a safer alternative and promote accountability. Regulation by the commission will give large institutions the confidence to invest in the crypto industry. For instance, companies like Deloitte that deal with millions of cash would be skeptical about investing in crypto. Such firms would not risk their clients’ money in cynical schemes.

Crypto Exchanges

Among the significant characteristics of crypto markets is that they are encrypted and hidden. Crypto markets are also associated with protecting their operations from any regulatory authority. The activities and transactions are highly opaque. Additionally, the process of launching an exchange is undemanding. Therefore, it is easy for crypto maniacs to create and start exchanges without public scrutiny.

SEC joining the crypto market will bring in changes that will see the exchange costs surge. The fees will increase as the commission seeks to enact audit checks for exchanges. Thus, before coins are placed on the transaction, they have to undergo this check. The tests will see these costs shoot up. Therefore before coins are placed on the trade, one will have to substantiate if the investment is worth it.

According to CEO Polymath, compliance costs in all industries usually go up after regulations start. Back in the 90s, a similar scenario occurred with hedge funds. There was an increased compliance cost of up to 7%. The increase saw the entire operating costs for hedge funds go up after regulation began. The costs gave clients confidence while investing in the industry and promoting the sector’s growth from 100 million to over 1 billion.

Challenges Associated with SEC Regulation

Curtailment with Investors

Most regulation tools tend to curtail individual investors from joining the industry. Regulators such as the SEC categorize investors to increase efficiency in the market. After classifying the investors, those that are outside the bracket can no longer participate in the tourney. Ordinarily, all clients are open to investing in any of the coins up for grabs in the exchange. Therefore, with a limited number of investors on the table, not everyone will hold crypto assets.

Cryptocurrency Classification

Over the years, regulators have maintained their stand that crypto coins such as Bitcoin and Ethereum are not money. SEC recognizes crypto coins as crypto assets due to their despised volatility. The price volatility of crypto coins is somewhat a turn off for investors and regulators. For this reason, the SEC wants to join the market and control the stability of these altcoins.

Benefits of SEC Regulations

Professional investors

The crypto market ordinarily deals with retailer investors. Retail investors do not have any requirements for joining the crypto exchange. However, the case is different from institutional investors, as they have dogged the criteria to satisfy. With a regulator in town, professional investors will have faith in crypto trading. Consequently, companies will raise more funds.

The Privacy Concern

The issue of privacy among crypto transactions is disheartening to novice players in the industry. However, with the SEC joining the crypto world, cryptocurrencies will cease from being encrypted and sub rosa to open and traceable transactions. Clients argue that investors would gain protection.

Final Word

price change

Cryptocurrency is somewhat a new concept to novice crypto fans and regulators such as SEC. The US Government has expressed interest in monitoring the crypto world. Now that the SEC has stepped forward to confirm their interests, all eyes watch to see how everything plays out.

More posts

What Are Crypto Validators and How do They Work?

Validators are new "payment processors" in decentralized networks, and as such, they produce blockchain rewards. It sounds simple, doesn’t it? However, the definition of validators in crypto is much more complex than that. Also, the role of a validator may change depending on the consensus mechanism that each blockchain uses. In this guide to validators in blockchain, we take a closer look at this entity and its indispensable role. Furthermore, we analyze four validator use cases in different blockchains and…

How Many ETH Will Burn After the London Fork?

Since its launch in July 2015, Ethereum has grown exponentially to be the second leading cryptocurrency in market value after Bitcoin. The platform’s growth has primarily been attributed to its smart contract feature, which powers the deployment of a wide range of applications, including oracles, decentralized finance (DeFi), decentralized exchanges (DApps), marketplaces, crypto-collectibles (NFTs), and developer tools.  Despite its growth, Ethereum faces numerous challenges that hinder its usability. The scalability challenge is one of the biggest ones that Ethereum faces. The current state…

The Impact of Adoption of Cryptocurrencies on E-commerce Business

E-commerce is the short form of electronic commerce. It is the buying and selling of merchandise over the internet networks. It also involves the transfer of funds and the keeping of records to certify the transactions made. E-commerce is of three types; business-to-consumer (B2C), business-to-business (B2B), and business-to-government (B2G). The main reason for using cryptocurrencies in e-commerce is to get rid of third parties that control the transactions. This relationship can make online shopping much easier and safer since blockchain technology that backs up cryptocurrencies is…

What it Means to Make Bitcoin a Legal Tender

June 9, 2021, marks the first move that would make history in Bitcoin's timeline. El Salvador passed a bill where 62 of 84 congressional voters would make Bitcoin a legal tender. Fast forward to September 7, and El Salvador became the first country to make Bitcoin a legal tender. In this article, we shall look into what it means for Bitcoin to be a legal tender in detail; What is Legal Tender? "This note is legal tender for all debts, public and…

The Correlation Between Blockchain Activity and Transaction Fees

Miners and validators are essential cogs in any crypto project. They're the ones who process transactions on a blockchain (BC) activity. For their efforts, crypto projects compensate them for their efforts from transaction fees. A transaction is only valid when it has undergone validation. The process ends in the validators adding it to the BC. Mining consumes a lot of computing power. As such, it's an energy-intensive exercise. The motivation for the miners is the block reward that consists of…

Understanding Shrimpy’s New DEX Trading Feature

DEX trading is one of crypto's newest but also most complex investment options as of late. Decentralized exchanges are trustless peer-to-peer (P2P) trading environments relying on smart contracts that help facilitate crypto exchanges. The clear benefits of DEX trading are security, anonymity, and greater user control. Although decentralized exchanges, and DeFi as a whole, have gained immense popularity over the past two years, the segment is still considered new by many in the community. A large chunk of crypto investors still does not feel…

Why Do Exchanges Freeze User’s Crypto Funds?

cryPicture this: you've finally mustered the courage to take the plunge into crypto. Everything is going right for you. You're mastering the hacks to optimize your investment and are looking forward to a fulfilling experience within the space. Then it happens. You log in to your account and find that you can't access it anymore, let alone transact in it. In a panic, you try customer support to no avail. Next, you can't help asking how you got here. Is it…

Determining the Initial Value of Cryptocurrencies

It is quite obvious that the total market cap of cryptocurrencies has enjoyed impressive growth since their inception. It was able to hit the magic $2trn figure, standing at $2.064trn as at the time of writing. That is close to 2.5 times the value of crypto at the start of this year, 2021, as per coinmarketcap data. While all these huge figures are truly impressive, things haven't been like that. The increased market capitalization has been more of a result…

Factors Driving the Price of a Crypto Project to Skyrocket

Cryptocurrencies continue to showcase outstanding crypto performance since the launch of Bitcoin in 2009. Global investors are looking forward to establishing financial stability with digital assets. Due to the growing interest, crypto prices are making a drastic shift to the top.  Still, in some scenarios, the market trend keeps decreasing for specific periods. A coin's bearish momentum creates fear and panic for users who believe in the future of the asset.  The opposite is a bullish market that records skyrocketing prices of…

Vivid Indicators of a Bull Run in the Crypto Market (Bull Market)

In the cryptocurrency space, a bull market is one whereby the prices are expected to rise significantly or are rising. Due to the volatile nature of crypto, the term “bull market” is reserved for more extended periods characterized by the rise of a large portion of the prices. To be categorized as a rise, the price must be up 20% after two declines of 20% each. There is optimism, expectations of solid results, and investor confidence in a bull market,…