Riot Blockchain to Launch Cryptocurrency Exchange

Riot Blockchain (NASDAQ:RIOT) has filed with the US Securities and Exchange Commission (SEC) for registration to develop RiotX, a regulated cryptocurrency exchange, the SEC revealed on Thursday (March 14).

The exchange is expected to be launched by the end of June 2019. Riot Blockchain, a company that has been mired in a number of lawsuits, senior management turnover and SEC scrutiny,states that this exchange will operate in fiat currencies including the dollar, euro, or yen and other approved cryptocurrencies.

The company claims that it has already received approval and/or licensing in five states, with 17 additional licenses pending.

Riot Blockchain states that the purpose behind creating the exchange could help hedge against the risk in exposure to price fluctuations in cryptocurrencies. As is further noted in the filing, “The company believes that, by providing a stable and secure platform for the exchange of digital currencies, it will attract significant trading volume, thereby providing the Company with consistent revenue per trade, independent of the price of any one digital currency.”

As Riot Blockchain broadens its services with the creation of this exchange, the filing states that the RiotX exchange will serve three main purposes: 1) Banking Services 2) a Trading Engine and 3) Digital Wallet Services.

The first primary service, banking services will be provided by SynapseFi, where users can deposit and withdraw fiat and cryptocurrencies, “while providing security and compliance assurances to financial institutions,” as the registration details, through its Application Program Interfaces.

Shift Markets will provide the trading exchange platform, through their proprietary trading engine service. Coinsquare was originally planned to provide the trading platform, however this agreement was terminated as of September 2018, just over two weeks after the initial agreement had been made.

As of the prospectus release date, no digital wallet provider has been selected. The primary purpose of the digital wallet would be for storing digital currencies securely. Costs including licensing fees, legal, software and general overhead and administrative fees for the development of this exchange are not to exceed US$250,000, as noted in the registration.

The potential advancement of a RiotX exchange will make it one of 243 crypto exchanges, according to CoinMarketCap. BitMax, a major crypto exchange reports over US$8.3 billion in trading volume in a given day, for example.

Less than one year ago, Riot Blockchain faced a litany of lawsuits held against it, including class action lawsuits alleging the company had manipulated share prices, violated federal securities laws, all with little evidence of having an existing blockchain business (Riot was formerly a biotech diagnostic machinery company).

Another potential problem came to light when Barry Honig, a major shareholder was caught selling a significant stake of his shares when prices of Riot Blockchain’s stock had risen over 450 percent from US$8 to US$38.

Like their counterparts in the US, Canada is making strides towards regulating the cryptocurrency arena. After the recent QuadricaCX scandal, where it was discovered that the company lied about its bitcoin reserves (not to mention that the CEO purportedly faked his death), the securities regulation bodies in Canada are in the process of creating new regulations for crypto exchanges.

In a report from March 14, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) acknowledged the benefits and risks of these new platforms. Risks included inadequate safeguarding of assets, lack of transparency in trade information and the potential for manipulative trading practices.

“Platforms may not hold sufficient assets to cover investor claims and return investors’ assets in the event of bankruptcy or insolvency. In addition, platforms may operate in jurisdictions that have limited asset protection and insolvency regimes” the paper also noted.

Regulators at the CSA and IIROC are calling on fintech professionals for feedback surrounding regulation on securities law.

In the US, the SEC requires that a cryptocurrency platform be registered with the Financial Industry Regulatory Authority and registered with the SEC as a national securities exchange.

While Riot Blockchain extends its operations into new territory, skepticism surrounding the company has not stopped the company’s share prices from rising. Since the prospectus was released March 14, share prices of RIOT have risen from US$3.35 at March 14’s open to US$3.88 Monday (March 18).TradingView, a technical analysis site currently rates Riot Blockchain as a “buy”.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.