SEC Warning Rattles Crypto Market as Bitcoin Plunges Below $10,000

Bitcoin was back on the defensive Thursday, as prices dropped below $10,000 after the U.S. Securities and Exchange Commission (SEC) said digital asset exchanges must register with the agency to trade so-called security tokens.

SEC Issues Stern Warning

The SEC issued the decree in a statement that was published on its website on Wednesday:

“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.”

Regulators have drawn a clear line in the sand in how they deal with security tokens, warning startups that they will scrutinize any token offering that is deemed to fall in line with federal security laws. In other words, classifying a digital asset as a “utility” token instead of a “security” token isn’t enough to circumvent the scrutiny of regulators.

Regulators also said they were concerned that many online exchanges appear to investors as regulated when they are not:

“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. 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.”

It remains to be seen how the major exchanges will react to the SEC’s warning. Currently, cryptocurrency exchanges must obtain state licenses to operate legally.

Crypto Market Falters

Regulatory unrest triggered a broad retreat in the market on Thursday, with the combined value of cryptocurrencies falling by as much as 8.5% from their session high. At the time of writing, the combined market cap for all coins was $382 billion, according to CoinMarketCap.

Bitcoin fell back below $10,000 for the second time in as many days, hitting a session low of $9,121. It would later recover at $9,395 for a loss of around 5.5%.

Every coin in the top ten traded lower on Thursday, with bitcoin cash, Monero and Cardano experiencing the biggest percentage drops.

In terms of overall dominance, bitcoin continued to make up around 42% the total market share. The cryptocurrency has taken a bigger piece of the pie in recent weeks as investors cut speculative bets on altcoins.

The SEC notice wasn’t the only bearish signal for markets this week. On Wednesday, crypto assets plunged double digits on speculation that Binance may have been subject to an orchestrated cyberattack targeting altcoins. After a thorough investigation, Binance assured users it had not been hacked.

Negative headlines concerning regulation and cyber security have deflated a market that was slowly regaining its poise. Prior to the recent reversal, bitcoin had tested highs near $11,700.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi