The largest U.S. financial watchdog has labeled nine cryptocurrencies as securities (security), which means they are now subject to securities laws.
The Securities and Exchange Commission (SEC) has been criticized for focusing on enforcement rather than providing legal guidance.
What is a Security
According to Investopedia: The term “security” refers to a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation via stock; a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option.
The link to Coinbase
The nine cryptos are all offered by US-based Coinbase. They are:
So all these tokens are offered on Coinbase and are hosted on Ethereum’s blockchain. If you read the indictment, it is no coincidence that these very “Coinbase tokens” are named.
Part of indictment
There is more to this than simply labeling nine coins. The SEC is a case commenced in which a former employee of Coinbase and two associates are accused of insider trading. The same complaint states that at least nine of the cryptocurrencies on Coinbase should be covered by securities laws.
Many in the crypto industry saw this as an example of regulation by enforcement. In other words, the SEC wants to flex its muscles.
SEC wants to regulate cryptocurrency
The filing marks one of the few instances where specific crypto currencies have been deemed securities by the SEC. The SEC has refused to clarify the legal status of many cryptocurrencies in the past, while constantly claiming that many crypto currencies should be under their purview.
A perfect example of this is the lawsuit against Ripple. The SEC and Ripple have been engaged in a legal battle since December 2020 over whether or not XRP is a security. After a nearly two-year trial, the SEC has yet to convince the judge. It helps, of course, that Ripple has deep pockets and can therefore use a lot of legal clout.
Criticism of SEC
Back to the charge. Coinbase responded to the SEC through a blog post which called for a regulatory framework for cryptocurrencies to be “guided by formal procedures and a public process of notice and comment, rather than by arbitrary enforcement or guidance developed behind closed doors.”
Not only are commercial parties in the crypto industry critical of the SEC, but Caroline Pham of the Commodities Futures Trading Commission (CFTC) doesn’t get it. She shows her displeasure on Twitter.
“The SEC v. Wahi case is a striking example of ‘regulation by enforcement,'” Pham wrote before asserting that the SEC’s allegations could have “broad implications” beyond the case itself.
Nine lawsuits
Her sentiment was shared by Jake Chervinsky, the head of the Blockchain Association’s policy, who said the case was a “mess” that would likely require “nine mini-trials” to determine whether each token is truly a security.
Criticism of the SEC is also being voiced from the political arena. Republican Tom Emmer criticized the SEC during a congressional hearing for “using enforcement to expand its jurisdiction,” calling the agency “power-hungry” and “hellbent.” Emmer said the SEC is doing everything it can to achieve its political goals at the expense of the crypto industry.
SEC’s Gurbir Grewal admitted at the hearing that the regulator has routinely acted against crypto industry participants in ways that may be beyond its jurisdiction.
Previous Articles:
- The Fed’s interest rates, the relationship with Bitcoin and inflation
- Bank of central African countries against bitcoin, wants its own digital currency
- The future of Ethereum through the eyes of Vitalik Buterin
- Cherry Servers Review: Fully dedicated and customizable cloud servers
- Why Tesla sold a large amount of Bitcoin
