Crypto exchanges have been the primary on-ramp and off-ramp for investors ever since Satoshi used his digital quill to pen his whitepaper. Since then, exchanges have grown fat off the proceeds, in some cases making profits bigger than mainstream banks.
But the SEC looks set to spoil the party. Over the course of 2018, it has started prosecuting companies for running
Security exchanges are,
Upcoming security exchanges have promised to fix all that. Much hope is riding on Bakkt, a platform for digital assets, which is backed by Intercontinental Exchange, the owners of the New York Stock Exchange–itself a security exchange. This platform will meet regulatory requirements, providing a facility for institutional investors. However, its launch has been pushed back to January 24, partly due to securing regulatory approval.
“The problem is, at the moment, many of these cryptocurrencies are part security, part commodity, part something else,” says David Forman,
In fact, while many crypto die-hards hate the sound of regulation, it’s the one thing many in the wider community are crying out for. At the same event, Ben
Typically, airdrops are a method of distributing tokens to users. They are commonly used to generate buzz around a project, reward users for certain behaviors and or create a community. But, from a regulatory standpoint, it is unclear whether such businesses have to spend manpower attributing the tokens to each customer and writing the code to allow them to be withdrawn–as is most likely to be the case with a security exchange.
Another concern is you can’t stop
This uncertainty is not new. Current exchanges have been loosely operating in this unregulated market for years, making plenty of money. Yet their business model may be a risk as the SEC claims more and more tokens are securities. Once a token is deemed a security, exchanges will typically delist it immediately to avoid being in violation of securities law, as has happened in Hong Kong. How many tokens are on the regulatory chopping block is unclear. What is clear is that Bitcoin and Ethereum are, according to the SEC, not securities, meaning an exchange might only be able to trade two currencies instead of the dozens most do today.
A house of cards
Most crypto exchanges won’t stand up to closer regulatory supervision, according to John Kirtland, business development director at cryptocurrency analytics company Neutrino. “A lot of them don’t apply KYC to every single transaction,” he says. “There’s a lot who will apply no KYC to crypto-to-crypto at low value.” This means they do not know who some of their customers are, a key principle for preventing movements of illegitimate funds. Even ShapeShift, an exchange run by libertarian Erik Voorhees and which is fundamentally against KYC, had to implement it this year.
This has left the door wide open for security offerings with the backing of security exchanges but will they attract retail investors? Probably not. The minimum investment for accredited investors is $143,750, for retail
“I don’t think they’ll flop but I think the time for adoption is slightly unknown. I think around the middle of next year, a lot of companies will be working on their security tokens and the infrastructure will be more developed,” says Graham