Bitcoin plunges on regulator caution to investors about ‘potentially unlawful’ platforms

The value of Bitcoin, the largest cryptocurrency, plunged Wednesday after the Securities and Exchange Commission warned of “potentially unlawful” online trading platforms that lack regulatory oversight.

Bitcoin dropped more than 9% to $9,825 following the warning. That represents more than a 1 1/2 week low, Reuters reported.

Values of other cryptocurrencies, including Ethereum and LiteCoin, also fell, according to market quotes on CoinMarketCap.

The declines came as the chief federal regulator of U.S. financial markets said its staff is concerned that many online trading platforms may give investors the “misimpression” that they are SEC-registered and regulated, “when they are not.”

“Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges,” the regulator cautioned investors.

Bitcoin and other cryptocurrencies have drawn billions of dollars in investments during the last few years as traders explore alternatives to stocks, bonds, and other investments. However, cryptocurrency values have gone through volatile swings in recent months.

The SEC’s cautionary note comes a week after CNBC and other media organizations reported that the SEC had issued subpoenas to a number of companies operating in the cryptocurrency sector, which has received billions of dollars in investments in recent years.

“Likewise, the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute, and access to a platform’s trading services may not be the same for all users,” added the statement issued by the SEC’s Enforcement and Trading and Markets divisions.

The SEC suggested several questions investors should ask before they trade digital assets on an online platform, including whether the market is registered as a national securities exchange, how the platform selects cryptocurrencies for trading and whether the Financial Industry Regulatory Authority has information about individuals or firms that operate the market.