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What the SEC Had to Say About Crypto

Written by Alexandra Perry
Posted February 10, 2018 at 7:00PM

Wasn't Monday fun?

If you're a digital currency investor, your answer is probably no. Last Monday was rough.

On Monday, the digital currency market plummeted over 20%. This crash coincided with a stock market correction.

Crypto bears are beside themselves with delight as crypto creeps closer to its grave. 

But, if you're one of them, I wouldn't get too excited. 

Despite all this doom and gloom, it doesn't really look like the cryptocurrency market is going anywhere. Even if Bitcoin continues to decline, the wave of digital assets it created will remain.

This view has been voiced by many analysts, futurists, and technology enthusiasts. 

This is also the view of many government entities, including the Securities and Exchange Commission, which came forward on February 6th to talk about further digital currency regulation and protecting investors in this developing space.

Trust me, if you're a digital currency investor, you're going to want to know what the SEC had to say.

The digital currency market isn’t dying; it’s just stabilizing.

The End of an Irrational Market

Before I get to the SEC, I want to look back fondly on the digital currency market we came to know and love in 2017. 

That market, while exciting, was fueled by irrational exuberance.

The world's first digital currency, Bitcoin, increased in value by over 1,700%. Ethereum skyrocketed by over 2,000%, and Litecoin jumped by over 1,000%.

And those are just the gains from mainstream tokens.

Other tokens, particularly those offered through initial coin offerings, raked in gains upward of 10,000%. 

And these tokens are one of the reasons the 2017 digital currency market is a thing of the past. 

In an initial coin offering, a company offers a digital token to investors in lieu of stock. Sometimes that token functions as part of a blockchain network. This isn't always the case. 

For many small companies or startups, initial coin offerings were a dream come true.

ICOs gave small companies the freedom to skirt traditional venture capital regulations that would otherwise slow them down. Companies could interact with a global audience of investors directly, raising over $1.2 billion in venture capital over the course of the year.

As ICOs boomed, many financial researchers and analysts issued words of caution, including our own Wealth Daily staff.

ICOs showed a scary resemblance to the small companies of the dot-com bubble. Many of those companies didn't have any value; they just grew alongside the hype.

The word "blockchain" gave small companies a second chance at this kind of growth.

At the peak of this blockchain lunacy, even public companies started dropping the term "blockchain" and watching their stock shoot to new highs. And many investors got robbed or lost money in the process.

Of course, while all of this was happening, the SEC and other regulatory entities were watching. 

By the end of 2017, rumblings of regulation started to shake the digital currency space.

It became very clear that, regardless of how groundbreaking digital currencies and their associated technologies may be, they couldn't exist without some form of regulation.

Now, in 2018, that regulation is starting to take place.

And it's a very good thing for digital currency investors. It is this regulation that will help us navigate out of volatile waters. 

The Government Steps in to Regulate 

On February 6th, the Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo both sat in front of the Senate Banking Committee for a grueling two-hour-long hearing about the future of digital assets. 

The talk hit on many key points that had been hinted at by the SEC in 2017, including the regulation and control of initial coin offerings

However, even though the meeting mainly focused on regulation and investor safety, there were quite a few positive notes about the potential of Bitcoin and blockchain technology as a whole. 

Here are the key takeaways.

The first key point of the meeting was that all digital tokens produced by ICOs are considered a security. 

This information is critical for every digital currency investor, especially those trying to avoid scams and cybercriminals. In order for an ICO to take place, the company has to submit an approval to the SEC. Seeing as none of the digital currencies on market have done so, the SEC has the right to investigate and prosecute as they see fit. 

We will likely see this play out in 2018, as the SEC steps in to punish malicious players in the digital currency space. In the long run, ICO regulation will make the digital currency market far safer for investors. In the short term, it will likely affect the stability of the markets.  

A second key point is that leadership from the SEC and CFTC is excited about Bitcoin and other digital assets.

In fact, Giancarlo even went to bat for Bitcoin's intrinsic value, saying that it’s based on the digital currency's mining methods.

Giancarlo stated, "I think this distributed ledger technology has enormous potential. Now how it will be realized, when it will be realized are challenges, and those we can’t say.”

You can watch the hearing here.

If you want to save yourself the time, just know two things: regulation will happen, but these technologies still have value.

Looking Forward to Digital Currency 2018

While no one should throw caution to the wind in the world of digital currencies, now is not the time to ignore them entirely. 

If you do, you may end up like the people who missed out on Amazon, Google, and Facebook after the dot-com bubble collapsed. These companies continued on to be powerhouses. But they had to survive the initial hype and boom cycle that destroyed many other technology companies. 

It turns out it's quite easy to make money in an irrational market driven by hype.

It's when that hype dies down that you have to narrow your focus. 

In 2018, it's going to be more important for investors to thoroughly evaluate the digital currencies they are investing in. The SEC will step in and protect where needed, and the promising companies will begin their rise.

For updates on promising digital currencies, keep an eye on your Wealth Daily e-letter. 

We've been with Bitcoin since 2014, and we will continue to provide investors with cutting-edge research as this market matures.

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Alexandra Perry

follow basic@AlexandraPerryC on Twitter

Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.

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