Bitcoin plunges before regaining ground in wake of US, Japan regulatory clampdown concern

Many platforms are referring to themselves as “exchanges,” which can give the “misimpression” to investors that they are regulated

FILE- In this Dec. 8, 2017, file photo, coins are displayed next to a Bitcoin ATM in Hong Kong. The IRS says that cryptocurrency transactions are taxable by law. That means people who made money (or lost it) on Bitcoin trades, “mined” Ethereum or even bought a cup of coffee with digital currency face potential tax implications. Failure to report it could mean potential audits, fines and penalties. (AP Photo/Kin Cheung, File)
Beta V.1.0 - Powered by automated translation

Bitcoin steadied after two days of losses as investors weighed the impact of a clampdown on cryptocurrency exchanges in Japan and renewed regulatory scrutiny of the venues in the US.

The biggest virtual currency was flat at just under $10,000 as of 8:38 a.m. in London, after earlier slumping more than 4 per cent during Asia trading hours. It has dropped about 10 per cent this week.

Japan’s Financial Services Agency ordered two exchanges to halt operations for a month and penalized four others on Thursday, just hours after a warning from the US Securities and Exchange Commission that many online trading platforms should register with the agency. The moves are the latest in a series of efforts by global regulators to increase oversight of the industry.


Read more:

Sweden leads way to a cashless world

Beware of the great cryptocurrency con


While signs of tighter regulation tend to weigh on digital-asset prices, some observers have argued that more government involvement would make the nascent markets safer for the hordes of individual investors who piled during last year’s speculative boom. Several of cryptocurrency venues have been hit by cyberthefts, trading outages and allegations of market manipulation.

“The number of events, the frequency of events that have occurred in the last short period of time has basically said to the regulators ‘Okay, we can’t just let this keep going, we have to act,”’ Ivan Zasarsky, Hong Kong-based China Financial Crime Leader with Deloitte’s APAC Financial Crime Network, said in a phone interview.

News on Wednesday that hackers had caused “irregular trades” at Binance, one of the world’s biggest cryptocurrency exchanges, highlighted the risks of using platforms that often operate in a legal grey zone. While Binance said that no funds had been stolen, the exchange also said it was unable to reverse some of the errant trades, without clarifying further.

The clampdown in Japan, one of the few major countries to develop a licensing system for cryptocurrency exchanges, came a month after Tokyo-based Coincheck Inc. lost nearly $500 million in the biggest cyber theft of its kind.

Two exchanges — FSHO and bit station — were instructed to halt operations for a month, the FSA said at a briefing in Tokyo, while GMO Internet Inc.’s GMO Coin, Tech Bureau Corp.’s Zaif, Bicrements and Mr. Exchange also face sanctions. The FSA ordered Coincheck to revise its management structure, improve anti-money laundering procedures and submit a report by March 22.

"They're not going to allow anything to move without regulatory oversight in that market," said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. "The FSA are extremely sensitive to regulatory compliance."
In the US, the SEC said for the first time that platforms serving as venues for digital assets that are securities will need to register with the agency as a national exchange, or qualify for an exemption.

Many platforms are referring 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, the SEC said in its statement, which was issued by the agency’s trading and markets unit and its enforcement division.

The enforcement division’s involvement shows the potential pitfalls for digital-coin platforms that don’t heed the SEC’s warning to register with the agency: they could be sued and shut down.

Exchanges that register with the agency have a high compliance burden, including being subject to inspections. They are also required to police their markets and follow SEC rules designed to ensure fair trading.

Some of the largest cryptocurrency trading platforms, including Coinbase Inc.’s GDAX, aren’t registered as a exchange with the SEC, and instead have money transmission licenses with separate states. Gemini is regulated by the New York State Department of Financial Services as a trust company, according to its website, while Templum LLC is an affiliate to Liquid M Capital, which is registered as an alternative trading system with the SEC. Inc.’s tZero says it aims to be a fully-compliant trading platform.

Coinbase said in a statement that it complies with all applicable laws. “Under the current SEC guidance, Coinbase and the GDAX exchange are exempt from registration requirements as they do not list assets that could be considered securities,” it said. The company said it plans to continue discussing regulation of cryptocurrencies with authorities.

"We applaud the SEC's statement," Gemini President Cameron Winklevoss said in a statement. "The trading of ICO tokens that are unregistered securities on unlicensed exchanges has gone on for far too long. This is dangerous for consumers and bad for the cryptocurrency ecosystem as whole."
Users of Binance complained online that their accounts had been hacked, and took to social networks Reddit and Twitter to say that hackers had sold their smaller coins and purchased a cryptocurrency called Viacoin.

The exchange said in a statement on its website that it had been the target of a “large scale phishing and stealing attempt.” While it said “all funds are safe,” Binance noted that it was unable to reverse some trades from accounts targeted by the hackers.

“We again advise all traders to take special precaution to secure their account credentials,” Binance said.

Zhao Changpeng, the exchange’s chief executive officer, didn’t immediately respond to a text message seeking comment.