Crypto Market Could Borrow Some Lessons from the Stock Market


The cryptocurrency market could borrow some principles from the stock market for more efficiency, a SEC official has said.

Although it is still growing Brett Redfearn says the market resembles the “wild west” and SEC would like to see some issues of concern addressed.

SEC is particularly concerned with cybersecurity, fraud, market manipulation, money laundering and terrorism financing.

Brett Redfearn
Brett Redfearn is in charge of the trading and markets division at the SEC

The SEC recently shook the markets after its Chairman Jay Clayton announced he generally considers ICOs as security offerings.

Increased Regulatory Scrutiny

The agency has been increasingly putting cryptocurrency exchanges under scrutiny in recent months and has been warning investors about participating in ICOs. The SEC has previously drawn similarities between online cryptocurrency exchanges to highly regulated stock exchanges.

“There are no registered exchanges, there are no registered ATSs (Alternative Trading Venues) trading any of these products,” Redfearn who is in charge of the trading and markets division told Reuters.

He also said that the agency is looking at recently launched ICOs. There are 1578 cryptocurrencies currently in existence with a total market capitalisation of more than $320 billion according to CoinMarketCap.

Crypto and Equities Evolution

Redfearn likened the current evolution of the cryptocurrency market to the equities market in the 1990s. Electronic trading networks were then coming up and prices were not well aligned. With rules, the sector has since evolved to become more efficient, he noted.

Some of these can be applied to the cryptocurrency market to guard against fraud, define best execution and prevent market manipulation, he suggested.

Similarities and Differences Between the Stock Market and Cryptocurrency Market

There are many similarities between the cryptocurrency market and the more traditional stock exchange. They are both governed by the rules of supply and demand. This means the prices go up when there is high demand and drop when there is low demand.

Stocks and digital currencies are more or less valued based on the idea behind them although with stocks there is a business already in place. On the contrary, people investing in cryptocurrencies are basically investing in the technology behind it.

The cryptocurrency market is prone to market manipulation owing to its relatively small size and lack of regulation. Several coins have been subject to pump and dump schemes.

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