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Bitcoin plunges after SEC seeks to rein in cryptocurrencies


Cryptocurrencies have been on a wild ride and the Securities and
Exchange Commission is trying
to rein them in once and for all.

The SEC warned on Wednesday of "potentially unlawful online platforms for trading digital assets." The
federal agency said that cryptocurrency traders should only buy and sell them on exchanges registered with
the SEC.
"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 or
be exempt from registration," said the SEC.
The announcement sent Bitcoin, the most well-known and highly-priced cryptocurrency, on a tailspin,
dipping 9% to below $10,000, about half the value it was trading at last year, according to Coindesk.com.

Ethereum and Litecoin also made significant declines.
Cryptocurrency is a digital currency that uses a technology called blockchain. The SEC said that many
cryptocurrencies, and also coins and tokens offered through a fundraising method known as an Initial Coin
Offering, meet the government's definition of a security. Trading platforms for cryptocurrencies are therefore
subject to federal regulations and must be registered with the SEC.

This could really shake up the market, according to Todd Kornfeld, a financial services attorney at Pepper
Hamilton.
"Liquidity is important for many holders of tokens, coins and cryptocurrencies, and if this SEC activity
reduces access to the existing token, coin and cryptocurrency markets, that could result in increased
volatility in the trading and pricing of tokens, coins and cryptocurrencies," Kornfeld said.
The SEC also warned that some of the unregistered, and therefore illegal, online trading platforms can
appear to be legitimate.
"The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and
regulated marketplaces when they are not," said the SEC. "Many platforms refer to themselves as
'exchanges,' which can give the misimpression to investors that they are regulated or meet the regulatory
standards of a national securities exchange."

But the volatility and the SEC scrutiny shouldn't come as a surprise to those scrutinizing these markets, said
Kornfeld. The SEC warned investors last year to be on the lookout for "potential scams" involving ICOs. It
busted "pump and dump" schemes, in which alleged fraudsters lure investors, take their money, and run.
"It's not surprising that this has happened," said Kornfeld. "It's a logical conclusion."

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