The Securities and Exchange Commission is expanding their involvement in the cryptocurrency space, according to Politico. They state that the SEC has begun investigating investment advisers amid concerns they entered the space without taking adequate precautions with investors’ money, and may therefore be breaking SEC rules. Investigations of this type would represent a scope beyond detection of ICO fraud and would illustrate an attempt to dig deeper into the space and root out malpractice.
Cryptocurrency custody and security is a huge thorn in the side of those who wish the space to grow, and it’s no surprise that the issue of custody is at the heart of this latest crackdown. Advisers of traditional assets must have client assets securely stored in line with SEC regulations. But, given the lack of custody services for cryptocurrencies, the SEC is worried that clients’ coins are not being adequately protected and are at risk of being stolen. No advice has yet been offered by the SEC on how to store a client’s cryptocurrency, which will no doubt be the argument of many an adviser who is deemed to be operating incorrectly.
Price manipulation has been one of the key factors the SEC has considered in its decision to not yet approve a Bitcoin ETF, and this is another area they apparently intend to investigate deeper. Given that cryptocurrencies change hands on unregulated exchanges, price manipulation is a definite and very real concern that many investors experience every day. However, given that most exchanges are out of reach of the SEC, it remains to be seen how they will go about attempting to tackle such a phenomenon.
All in the Name of Research?
The SEC bared its teeth last year when it halted a number of ICOs on the basis of fraud, and in September this year it shut down a crypto hedge fund that fell foul of their rules. This makes the supposed deeper move into the landscape unsurprising, carrying with it the concern from some that they are being too heavy handed and are stifling innovation. This latest investigation however may prove to be little more than an attempt to gain a deeper understanding of the space, potentially resulting in clearer guidelines for all to follow in a world still operating very much in the dark.