Government regulation could mean the disappearance of cryptocurrencies


The government has finally started a crackdown on the cryptocurrency market and digital tokens. This spelling the end of digital currencies and the end of initial coin bidding?

In recent weeks, the Justice Department has joined an investigation by the Commodity Futures Trading Commission in the manipulation of the bitcoin market. The Securities and Exchange Commission issued a statement on November 16th to explain that its tax efforts focused on initial coin offerings, which it considers to be titles that require registration and compliance with a set of disclosure rules.

The investigation by the Department of Justice and the CFTC focuses on the fact that the tether, a cryptocurrency issued by a Hong Kong company, may have been used to increase the value of bitcoin through timely operations. Bitcoin rose 2000 percent in 2017 to a peak of nearly $ 20,000, only to collapse more than 80 percent this year.

Prosecutors have an advantage in the investigation of bitcoin manipulation: they can use the statute of fraud to pursue any scheme involving property, including intangible property such as a cryptocurrency.

The connection between cable and bitcoin was first detected in a study conducted by two finance professors at the University of Texas. They stressed that "trade in unregulated trade, and in particular cross-currency exchange, could leave cryptocurrencies vulnerable to gambling and manipulation".

But any nascent market, like the bitcoin market, has significant growing pains. The question is whether cryptocurrencies are really just a new form of penny titles, albeit with a much higher rating.

Penny stocks are cheap, subtly traded and not closely monitored by analysts. And as everyone who has seen "The Wall Wall Street Wolf" knows, they are subject to strong fluctuations and market manipulations by their controlling shareholders. Some good news, whether true or not, can double or triple the price of the stock overnight. That's when those who have control of the stock can download their shares and leave those credulous enough to invest in the hope of entering the ground floor of the next big thing with losses.

Cryptocurrencies are subject to many of the same problems as penny stocks. Most of the trade occurs on non-regulated services abroad. While many call themselves "exchanges", they provide practically none of the protections offered to investors in stocks and bonds. Without a clear record of who is operating, manipulating the price may not be very difficult for sophisticated participants looking to increase the price.

On the same day, the SEC issued its statement in November, and resolved two cases with digital token issuers for violating the securities laws, requiring them to pay $ 250,000 each and working to repay investors' money in their bids. illegal.

In another case, Maksim Zaslavskiy, who was accused of criminal fraud involving an ICO, pleaded guilty to the US District Court in Brooklyn. This was the first case in which a judge found that digital coins were a type of security and therefore subject to the associated anti-fraud rules.

The SEC has solved a case against the founder of EtherDelta, Zachary Coburn, whose company facilitated the trade in digital coins, since it operated as an unregistered national stock exchange. For those looking to offer a trading platform in the US, registering with the SEC as an exchange is also an expensive and time-consuming process.

But even before the government began its repression, it was a big sign that the euphoria was evaporating from the market: the decline of cryptocurrency mining that generates additional digital tokens. Giga Watt, a digital currency mining operation in the state of Washington, recently filed for bankruptcy, largely due to the fall in bitcoin prices. Santa Clara's Nvidia, which makes the graphics chips important for mineral cryptocurrencies, expects a 20% drop in revenue in the next quarter due to the "sharp drop in the demand for mineral cryptocurrency".

For opponents of cryptocurrencies and initial offers of coins, this is the anticipated end of a speculative bubble, just like the tulip mania in Holland in the seventeenth century or the implosion of the dot com. This does not necessarily mean that this type of investment will disappear, but greater government control will increase costs for trading platforms and could effectively eliminate initial money offerings if they are to be registered with the SEC.

Peter J. Henning is a New York Times writer.

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