The U.S. Securities and Exchange Commission (SEC) has issued an order against a firm in Florida after it launched its own cryptocurrency, which had raised questions.
The order, which was released 7 June, shows that the U.S. regulator had issued an order pursuant to Section 12(k)(1)(A) of the Securities Exchange Act of 1934 on 11 April, 2017, to suspend trading in the securities of Sunshine Capital, Inc., for the period starting 12 April, 2017 and ending 26 April, 2017.
According to the order, questions had been raised regarding the company’s assets, namely its dibcoin digital currency and the accuracy surrounding them. As such the Commission was ‘of the opinion that the public interest and the protection of investors require a suspension of trading.’
Requesting additional written submissions, the SEC has ordered that petitioners submit a brief by 23 June with the Division of Enforcement expected to submit a response by 7 July.
What is Dibcoin?
According to a 2016 press release, dibcoin was developed by DIB Funding, which is an equity holding firm and is the parent company of Sunshine Capital.
Built on top of the Omni Layer protocol, which is built as a layer over bitcoin, dibcoin is open source with Bitcoin 2.0 properties with only five million dibcoin available.
At the time, James R J Scheltema, president and CEO of Sunshine Capital and DIB Funding Inc., said that this was a ‘unique application’ of a digital currency.
“We are going to be the first public company ever to use cryptocurrency to buy profitable private companies without the need to issue debt or dilute shareholder equity.”
Dibcoin Fights Back
Replying to a request for a comment to CoinDesk, Adam Petty, president and CEO of Sunshine Capital and DIB Funding recently stated that the issue regards the ‘nature of the investment‘ and that it’s a ‘cryptocurrency coin.’
“If that was the case, then no matter what our answer was or what hoops we jumped through, the chance of the trade suspension being lifted was indeed low.”
However, he added that dibcoin will continue with its development.
“We are still using dibcoin to buy private companies and other assets; and dibcoin will be used as a method of payment in retail outlets.”
SEC Cracks Down on Bitcoin
This, however, isn’t the first time that the U.S. regulator has focused on digital currencies and their use among the wider public.
Back in March, the SEC made the decision to reject, what would have been, the first-ever bitcoin exchange traded-fund (ETF) that had been proposed by Cameron and Tyler Winklevoss more than four years previously.
After the SEC’s decision, Tyler Winklevoss, CFO of Digital Asset Services, said at the time:
“We remain optimistic and committed to bringing COIN to market, and look forward to continuing to work with the SEC staff. We began this journey almost four years ago, and are determined to see it through. We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”
In the run-up to the decision the price of bitcoin was trading at an all-time high of $1,300. However, following the news, the price of the currency dropped back down to $1,000, a price it had finally attained at the beginning of the year.
The rejection of the bitcoin ETF was based on the fact that regulation and safeguards needed to be put into place. At the moment bitcoin is an unregulated market, which could be stunting its potential growth.
According to a public notice by the SEC on its decision, it said:
“As discussed further below, the Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”
It further added:
“The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.”
Since the 10 March decision, the SEC has since said that it would review its rejection after the Bats Exchange, which is where the bitcoin ETF would have traded, petitioned for a review.
At the time of publishing and in the month of June, no there remains no bitcoin ETF. However, if bitcoin was to become regulated and the SEC approved the ETF, it would undoubtedly boost the currency’s position, which in turn could push its price higher.
At the moment, though, the price of the crypto market is seeing prices tumbling while bitcoin has dropped by around 20 percent from its recent $3,000 mark to currently trade at $2,360.
Switzerland Home to the First-Ever Crypto Mutual Fund?
With work in progress to get a bitcoin ETF into existence, developments are being made in other countries which could beat the Winklevoss twins to it.
One such country is Switzerland, which is known for its bitcoin-friendly stance and embracive attitude toward the digital currency. So much so, that Crypto Fund AG has announced that it is creating a Cryptocurrency Fund, which will invest in well-established currencies such as bitcoin, ether and ripple, to name a few. Planned to launch in Q4 2017, this would become Europe’s first ever diversified digital currency fund.
Investing in the biggest digital currencies by market cap value and liquidity, this allows for a high level of diversification, which reduces the volatility of the fund and in turn ensures high growth rate of new currencies.
Jan Brzezek, CEO of Crypto Fund AG, said that this would be different from the Winklevoss ETF:
“Unlike the Winkelvoss-ETF, which was rejected by the SEC, we use the regulated and proven Swiss fund structure according to KAG, where the asset manager, the fund management company and the custodian bank are legally separate from each other. The Fund will be highly diversified and will not list on an exchange and exclusively target qualified investors.”
Featured image from Flickr via SIJJL Me.