2023-05-20 08:04:13
The line between cryptocurrencies and traditional financial instruments has always generated serious debate among market participants and regulators.The United States Securities and Exchange Commission (SEC) has enjoyed special attention in this discourse since its inception, mainly because of its role in securities regulation.The SEC’s latest decision has significant implications for investors, the stock market, and the industry as a whole.
The position of the Stock Exchange Authority
The SEC has examined many cryptocurrencies based on the standards set forth in the Securities Act of 1933 and court precedent.America has precedent-based jurisprudence, so it’s crucial
the so-called Howey test (named after the “SEC vs.Howey et al” lawsuit), which determines whether something is classified as a security based on three main criteria.It examines whether a transaction: 1) involves an investment in a joint venture, 2) whether the investors hope for the expected profit from the efforts of others, 3) whether the result depends on the efforts of individual investors.
At the time, the court ruling in the original case classified the relevant transactions as securities contracts.
This decision is considered precedent-setting by the SEC and has been applied to the definition of securities ever since, especially for cryptocurrencies and ICOs.In the current investigation, 37 cryptocurrencies were finally classified as securities:
– XRP (XRP)
– Telegram Gram Token (TON)
– LBRY Credits (LBC)
– Decentraland (MANA)
– DASH (DASH)
– Power Ledger (POWR)
– OmiseGo (OMG)
– Algorand (ALGO)
– Naga (NGC)
– TokenCard (TKN)
– IHT Real Estate (IHT)
– Who (KIN)
– Salt Lending (SALT)
– Beaxy Token (BXY)
– DragonChain (DRGN)
– Tron (TRX)
– BitTorrent (BTT)
– Terra USD (UST)
– Moon (MONTH)
– Mirror Protocol mAssets (Multiple Symbols)
– Mirror Protocol (MIR)
– Mango (MNGO)
– leads (leads)
– Curl (CURL)
– EthereumMax (EMAX)
– Hydro (HYDRO)
– BitConnect (BCC)
– Meta 1 Coin (META1)
– Rally (RLY)
– DerivaDAO (DDX)
– XYO Network (XYO)
– Rare (RGT)
– Liechtenstein Cryptoasset Exchange (LCX)
– DFX Finance (DFX)
– Chromatica (CHROME)
– FlexaCoin (AMP)
– Filecoin (FIL)
Perhaps the biggest reaction was the listing of Filecoin: this token is very popular on the American stock exchanges, and they just worked together with Greyscale Investments to create a trust fund.
Thanks to an unexpected decision by the SEC
this plan has now fallen into disrepair although Grayscale is pursuing legal avenues for appeal: “Grayscale does not believe that the FIL token would qualify as a security under federal regulations, and we intend to present the legal basis for this opinion to the Securities and Exchange Commission as soon as possible.” the company announced.
What are the consequences of reclassification in practice?
Issuance and distribution of unregistered securities is a serious violation of the law.With some exceptions, securities must be registered with the SEC before they can be offered to the public.
With the Securities and Exchange Commission classifying these coins as securities, many local crypto exchanges also found themselves in a difficult situation, since the exchanges would not be able to give space to the distribution of unregistered securities either.These exchanges may now easily face scrutiny and new regulations.
In addition to stock exchanges, investors are also faced with a new situation: a change in legal status can change the prospects of projects, and
the stock exchange liquidity behind the coins, after all, it is quite possible that certain crypto exchanges will simply remove tokens classified as securities from their offer to avoid further legal hassles.
Reducing risks
It was already common practice in the industry that issuers, investors, and stock exchanges requested a legal opinion on issued coins.
This independent legal opinion stated that the issued token does not qualify as a security – this served as proof of the parties’ good faith, and most serious exchanges have not previously been able to list any cryptocurrency without such an independent legal opinion.
According to Brian Armstrong, CEO of Coinbase, such tough action by the SEC will only encourage Americans to take their web3 projects offshore.Other critics argue that SEC practices can stifle innovation in the industry, and high legal and regulatory costs make it impossible for teams with smaller budgets to run a token issue.
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