By Dr. Aman Saggu

Introduction

Cryptocurrencies like Bitcoin and Ethereum have become popular worldwide, including here in Thailand. However, when the United States Securities and Exchange Commission (SEC) applies old regulations from over 70 years ago to this new technology, it often causes confusion and market chaos. These actions affect American investors but also have a ripple effect on countries like Thailand, where many people have started embracing digital currencies. This article explains how US regulatory decisions lead to sudden price drops, shaken confidence, and difficulties for everyday Thai investors looking to join the crypto revolution.

The Howey Test: An 80-Year-Old Rule

At the center of the SEC’s oversight is the Howey Test. This test, created in 1946 for a case about citrus farms, helps determine what counts as a ‘security’ (like a stock or bond). In simpler terms, an asset is usually considered a security if people invest money in a common venture with the expectation of profit that depends mainly on someone else’s efforts. However, this test, created 80 years ago to define investment contracts in traditional finance, struggles to keep up with the complexity of modern cryptocurrencies, which combine features like real-world use, community decision-making, and investment potential.

Our Research: How SEC Decisions Impact Crypto Markets

In our paper, Uncertain Regulations, Definite Impacts: The US SEC’s Regulatory Interventions and Their Effects on Crypto Assets, we explore how the SEC’s actions influence cryptocurrency markets. Drawing on SEC filings, news reports, and trading data, we conducted an ‘event study.’ This study measures how crypto assets behave following official SEC announcements. By analyzing the ‘abnormal return’—the difference between an asset’s expected price movement and its actual performance—we were able to isolate the regulatory impact on market behavior.

Market Reactions to SEC Announcements

• Rapid Price Declines: Cryptocurrencies designated as “securities” by the SEC often experience swift and sizeable price drops. Our study found that prices can fall around 5% within three days and as much as 17% over a month following an SEC announcement.
• Trading Volume Drops: In the wake of these announcements, investors tend to trade less, causing diminished liquidity and further reducing prices. This trend reflects how quickly shaken confidence can spread throughout the market.
• Impact on Larger Cryptocurrencies: High-profile cryptocurrencies with substantial market capitalization are particularly vulnerable to loss of value when under SEC scrutiny. Their visibility means they can spark broader market downturns.
• Challenges for Smaller Cryptocurrencies: Lesser-known crypto assets often suffer even more substantial declines. Because these assets have lower liquidity, rapid selling can trigger sharp price drops, leaving investors with few exit options.
• Increased Market Volatility
• Unclear regulatory guidelines contribute to unpredictable price movements, particularly in the first week after an SEC announcement. This heightened volatility makes long-term investments riskier and undermines market stability.

Why This Matters for Thai Investors

Even though Thailand has its regulator, the Thai SEC (สำนักงานคณะกรรมการกำกับหลักทรัพย์และตลาดหลักทรัพย์), the U.S. remains a major player in the global crypto scene. When the American SEC cracks down on a particular crypto asset, prices often tumble around the world, including on Thai exchanges. This can make it tough for Thai investors to exit positions if they need to sell for urgent reasons. Liquidity—how easily you can buy and sell—may dry up, leading to bigger price swings. Local exchanges may even decide to delist certain crypto assets just to avoid any legal complications, further limiting investors’ options. All of this heightens the risk for people in Thailand who might not be fully prepared for quick and dramatic market changes.

Another aspect is the emotional stress. Many investors—both in Thailand and abroad—share their frustrations online when prices unexpectedly dive, sometimes losing thousands of Baht in just a few hours. This sense of anxiety is worsened by the feeling of having little control since the decisions of a US agency can drastically affect global markets. While the SEC says its main goal is to protect investors, critics argue that unpredictable, sudden actions do more harm than good by pushing people to less-regulated platforms, where consumer protections are weaker.

A Need for Better Rules

There is hope that upcoming leadership changes at the SEC may lead to clearer, more modern rules for digital assets. If the agency moves away from using the outdated Howey Test alone and provides transparent guidelines, markets could become more stable. This would help not only US investors but also Thai enthusiasts who want to explore new opportunities in crypto without constantly worrying about sudden regulatory shocks. Consistent and updated rules could support responsible innovation, give investors more confidence, and encourage a healthier atmosphere for everyone involved.

Conclusion

The SEC’s long-standing approach to labeling digital assets as securities can cause disruptive swings in crypto prices around the world. Thailand, like many other countries, is not immune to these shocks. When large exchanges outside the US see heightened risks, they may delist crypto assets, affecting Thai investors who have fewer places to trade. At its heart, the problem lies in applying a decades-old legal test to a technology that is rapidly growing and evolving. Moving forward, clear and modern regulations are essential to protect all investors, inspire confidence in new financial technologies, and prevent avoidable market upheavals. Those in Thailand should remain informed, diversify their investments, and stay aware of how foreign rules—including those from the US—can reverberate through local markets.

To dive deeper into these findings, access the full research paper at 

• https://doi.org/10.1016/j.frl.2024.106413

Reference: Saggu, A., Ante, L., & Kopiec, K. (2024). Uncertain Regulations, Definite Impacts: The Impact of the US Securities and Exchange Commission’s Regulatory Interventions on Crypto Assets. Finance Research Letters, 72, 106413.

_______________

About the Author

Dr. Aman Saggu is a Lecturer in Cryptoeconomics and Banking at the Business Administration Division of MUIC. He can be reached at aman.sag@mahidol.edu