The regulation of the Bitcoin industry is getting even stranger. Not only are Initial Coin Offerings (ICOs) and token sales now subject to federal securities laws, in late August the SEC announced the temporary suspension of trading of First Bitcoin Capital Corp (BITCF). The trading ban on the Canadian company will be in effect until September 7 at 11:59.
According to the SEC, “The Commission temporarily suspended trading in the securities of BITCF because of concerns regarding the accuracy and adequacy of publicly available information about the company including, among other things, the value of BITCF’s assets and its capital structure.”
The company’s goal is to not only acquire and invest in Bitcoin start-ups but also to invest in mining equipment and bitcoin only online stores. It also has its own digital currency exchange and plans to offer its own cryptocurrency exchange called Coinqx.com.
So far, so good. What is the SEC’s beef with BITCF?
The price of BITCF on the OTC (over the counter) markets jumped 7,000% this year. At the beginning of 2017, shares were trading at $0.045, rising to a high of $3.15 in early August, before falling to a price of $1.79 at the time of suspension.
Because BITCF is an OTC security, it is not required to file information with the SEC. However, the OTC Market’s inter-dealer quotation system called OTC Link is registered as a broker-dealer. OTC Link is also a member of the U.S. Financial Industry Regulatory Authority (FINRA).
There are not a lot of ways, in other words, to completely avoid the regulated banking and securities system. Even for companies dealing in cryptocurrency.
In the meantime, since the suspension, at least three law firms are looking into class action liability issues. Specifically, losses suffered by investors who might have been misled by the company’s claims.
The Rosen Law Firm announced its investigation on August 24. A second law firm, Gewirtz & Grossman, announced that they are investigating whether the company broke the Securities Exchange Act of 1934. A third firm, Faruqi and Faruqi is now investigating claims of those who lost more than $100,000 as a result of the large price fluctuations.
In other words, Bitcoin is becoming regulated just like any other security and for reasons that have nothing to do with the “decentralized” authority of Bitcoin, but rather the larger financial system into which it is becoming integrated.
For this reason, Bitcoin and other cryptocurrencies are well on the path towards regulation. In terms of exchange. And in terms of price. Not to mention price manipulation.
What Will This Mean Down The Road?
While cryptocurrency will continue to develop, the idea of a freewheeling, unregulated monetary or securities exchange is likely to go the way of the Dodo. As cyber currencies of all kinds as well as tokens become integrated into not only daily life but machine-to-machine operations, they will inevitably be more controlled and regulated. They will have to be. For example, in the case of token exchanges between inanimate objects, the stability of the value of these tokens will have to remain relatively stable. Otherwise, running the dishwasher or the electric car will become an almost impossible value arbitrage.
Where is this going in the land of currency? The value volatility that is a hallmark so far of all cyber currency exchanges and currencies may continue for some time. It may be that the token and currency markets will diverge. Or it may mean that all will eventually settle down into a world that is far more like the traditional securities and currency markets that exist today.
That appears to be the direction in which we are now heading. And that, despite the dreaded “R” word (regulations) may be exactly the thing that investors really want.