The Securities Exchange Commission (SEC) has issued a warning against online trading platforms for digital assets (cryptocurrency exchanges).
The SEC said "if a platform offers trading of digital assets that are securities and operates as an "exchange," as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange."
The SEC had previously issued a similar warning against so-called ICOs (initial coin offerings).
The SEC is not yet explicitly defining cryptocurrency as a security and the Securities and Exchange Act of 1934 that does define a "security" did not anticipate the future existence of independent digital currency.
The IRS is treating cryptocurrencies not as currency or money but as assets which can be taxed when sold for hard currency.
So until new rules are passed, cryptocurrencies still reside in a gray area and it may take a court ruling to more clearly define the regulatory nature of cryptocurrencies.
A wide range of cryptocurrencies are traded and exchanged for hard currency on hundreds of independent, unregulated exchanges around the world. Some sites claim that there are hundreds of thousands of trades every day worth billions of dollars.
Because there is little or no regulation of cryptocurrencies or the exchanges, fraud is all too common and many of the exchanges are in reality just criminal enterprises.
Some of the exchanges claim to have been the victims of massive thefts of digital coins but the coin thefts were later revealed to actually be inside jobs.
One way to get rich quick these days is to setup a cryptocurrency exchange and start trading digital coins and then stage a hack and claim that coins were lost, then sell or exchange the coins elsewhere.
After the SEC warning was issued on March 7, the various exchanges posted substantial drops in the value of most cryptocurrencies. The problem is that the cryptocurrency market is so fake and manipulated that many market movements are likely engineered.
While a large portion of the cryptocurrency industry is fraudulent, there are players struggling for some sort of legitimacy. But legitimacy requires some sort of regulation and most cryptocurrencies were designed to be decentralized and unregulated to meet the needs of cryptoanarchists and criminals. They were not designed for legitimate regulated commerce with the necessary oversight and checks and balances.
The IDMC intends to offer a sound regulatory framework for regional digital currencies so that they can be used for legitimate trade and not reside primarily in the chaos of investor exchanges.