Securities and Exchange Commission is purportedly an independent regulatory US agency in charge of protecting investors when they enter the market.

To understand the SEC, one must first understand what it governs - securities. And to grasp securities, we first have to tackle fungibility. Ever since the first coin was created, the concept of fungibility was born. Before it, people had to trade goods for goods. For example, spices or flour for cattle or pots.

After the issuance of money, goods and services could be interchanged, with value staying the same between assets. For instance, if a cow is sold for five gold coins, the seller could then use those coins to purchase something completely different. Securities work in a similar manner.

They are fungible representations of monetary value. If you are to own a fraction of a company, a security in the form of stock shares would represent that value. Broadly, we differentiate between four types of securities:

  • Equity – represents ownership of a company

  • Debt – securities like bonds or certificates of deposit. They represent ownership of the money that is borrowed, to be repaid with interest and maturation date.

  • Derivatives – futures, forwards, options, swaps. Derivatives draw value from a wide range of underlying assets: stocks, (crypto)currencies, bonds, commodities, interest rates, indices. They are mainly used as a hedge against price movements.

  • Hybrid – Securities that combine features of equity and debt. For example, convertible bonds that can be converted into a set number of shares during or at the maturation date. Michael Saylor of MicroStrategy, one of the biggest Bitcoin whales, sells convertible bonds to buy Bitcoin because he counts on Bitcoin to appreciate.

As you can see, with so many combinations of financial instruments at one's disposal, things get complicated fast. Founded in 1934 by the US Congress, the SEC, is there to protect the investors from potential manipulation of market participants. For that purpose, all parties that engage in securities trading must register with the agency, so they could be supervised.

This especially applies to brokers, asset managers, and market makers, such as Nasdaq, Citadel Securities, and NYSE. Furthermore, the SEC monitors corporate takeovers and educates people on the risks involved in different types of trading.

In the crypto world, the SEC's role is yet unclear. Some think that cryptocurrencies should come under the supervision of the Commodity Futures Trading Commission (CTFC). Presently, it seems that the SEC has the upper hand when it comes to regulating the crypto market. Specifically, dozens of Bitcoin ETFs (Exchange-Traded Funds) are waiting for SEC's approval.