Cryptocurrencies like bitcoin just hit another hurdle in their effort to be broadly distributed currencies for transactions. The U.S. Securities and Exchange Commission (SEC) will begin to regulate exchanges that trade them, assuming they are trading platforms at all, the government agency said.

According to an SEC bulletin:

Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”). The platforms often claim to give investors the ability to quickly buy and sell digital assets. Many of these platforms bring buyers and sellers together in one place and offer investors access to automated systems that display priced orders, execute trades, and provide transaction data.

A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws. 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. The federal regulatory framework governing registered national securities exchanges and exempt markets is designed to protect investors and prevent against fraudulent and manipulative trading practices.

Cryptocurrencies will become more like stocks in the way they are traded and treated by the government. Exchanges, where they are traded, will become more like the New York Stock Exchange. The “Wild West” aspect of trading these currencies appears to be close to an end.

To make its decision more specific, the SEC laid out questions investors should ask when trading cryptocurrencies. They read like a 101 course for investing in any security:

• Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)?
• Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
• Is there information in FINRA’s BrokerCheck ® about any individuals or firms operating the platform?
• How does the platform select digital assets for trading?
  Who can trade on the platform?
• What are the trading protocols?
  How are prices set on the platform?
• Are platform users treated equally?
• What are the platform’s fees?
• How does the platform safeguard users’ trading and personally identifying information?
• What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
• What other services does the platform provide? Is the platform registered with the SEC for these services?
• Does the platform hold users’ assets? If so, how are these assets safeguarded?

Do the cautions mean individual investors will be less likely to invest? The list has enough rules to create anxiety. If that happens, the cryptocurrencies markets are about to shrink.

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