The U.S. Securities and Exchange Commission lashes out against important crypto platforms; we analyze the impact it generates.
The SEC securities Crypto-list
SEC Ranks 55 Cryptocurrencies as Securities. The SEC has generated significant controversy by filing a lawsuit against major crypto platforms such as Bittrex, Binance, and Coinbase. According to the SEC, this legal action has brought to public attention a total of 55 cryptocurrencies that are now considered securities. Amid this scenario, the Cryptorank portal has published a tracking list highlighting cryptocurrencies classified as securities by the SEC.
It is not limited to cryptocurrencies involved in recent lawsuits but also includes past cases, such as Ripple, Ton, or FTX, categorized as securities at different times. This list provides a broader view of cryptocurrencies under regulatory scrutiny and could face legal consequences in the investment arena.
What does it mean for a cryptocurrency to be considered a security?
Securities represent a form of investment in which investors acquire rights to an underlying asset, such as company shares. If the company is successful and its value increases, the shares also increase, allowing investors to sell them at a higher price than their initial purchase price, thus making a profit.
In the case of cryptocurrencies, the U.S. Securities and Exchange Commission (SEC) considers a cryptocurrency as a security if it fulfills the definition of an “investment contract” under the Securities Act of 1933 [PDF]. This involves elements such as the investment of money in a company, the expectation of making a profit, and the reliance on third parties to generate those profits.
The Howey Test marks these criteria. The U.S. Supreme Court established these norms in 1946. According to this test, you must consider a transaction as an investment in a contract if it meets four criteria:
- You must invest money.
- You expect profits.
- Those profits depend on the efforts of third parties.
- The investors have no control over the outcome of the investment.
In short, securities are investments in underlying assets such as stocks, and you can consider cryptocurrencies as securities if they meet the criteria set by the SEC and the Howey Test.
List of cryptocurrencies considered by the SEC as “Securities“
Through a post on its Twitter account, Cryptorank released the list:
The list consists of the following cryptocurrencies:
BNB (Binance Coin), XRP (Ripple), ADA (Cardano), TRX (Tron), MATIC (Polygon), SOL (Solana), BUSD (Binance USD), ATOM (Cosmos), TON (Toncoin), NEAR (Near Protocol), ALGO (Algorand), SAND (The Sandbox), MANA (Decentraland), AXS (Axie Infinity), LUNC (Terra Classic), FIL (Filecoin), ICP (Internet Computer), BTT (BitTorrent), FLOW (Flow), Chiliz (CHZ), NEXO (Nexo), DASH (Dash), LUNA (Terra), USTC (Terra Classic USD), AMP (Amp), OMG (OMG Network), POWR (Power Ledger), COTI (COTI), XYO (Xyo), RLY (Rally), LCX (Lcx), VGX (Voyager Token), MNGO (Mango), KIN (Kin), NGC (Naga), DDX (DerivaDAO), LBC (LBRY Credits), MIR (Mirror Protocol, RGT (Rari Governance), TKN (Monolith), KROM (Kromatika), DRGN (Dragonchain), SALT (SALT), DFX (DFX Finance), IHT (IHT Real Estate Protocol), HYDRO (Hydro), AIR (AirToken), PRG (Paragon), FTT (FTX Token), EMAX (EthereumMAx).
Reactions from the sued projects
Following the SEC’s consideration of cryptocurrencies, the repercussions quickly arrived. Major blockchain projects such as Solana, Polygon, Dash, and Cardano have come out in defense of their position in the face of this possible classification as securities.
In particular, Polygon has used its Twitter account to express disagreement with the SEC’s signaling regarding its token. It states that they are proud of its development and global implementation, focused on the community behind the network:
“We are proud of the history of the Polygon network – developed outside the US, deployed outside the US, and focused to this day on the global community that supports the network. MATIC was a necessary part of the Polygon technology from Day 1, ensuring that the network would be secure – and remains so to this day. Given our focus on network security, we made sure MATIC was available to a wide group of persons, but only with actions that did not target the US at any time. The non-US market is the largest in the world, and we are grateful for all the thoughtful work being done on all aspects of this technology around the globe, including by regulators & policymakers. We are confident in the actions we took in the past, and how focused we are on building in the future. Exciting tech announcements this week!“
Polygon Labs
The Solana Foundation has also stated via Twitter. In it, they express their disagreement with the classification of SOL as a security. In addition, they note that they value the continued engagement of lawmakers as constructive partners in regulation, intending to achieve legal clarity for entrepreneurs operating in the digital asset space in the United States.
For its part, Dash issued statements on April 18 of this year in response to the SEC’s allegations when they initiated the proceedings against Bittrex. In a Twitter thread, Dash stated, “Peer-to-peer digital cash is not a crime. Financial sovereignty is not a crime. Decentralized governance is not a crime. Privacy is not a crime.” Dash’s Twitter thread explains that the SEC’s accusations are not understandable to Dash, as they consider Dash a means of payment and not an investment. Dash maintains its focus on providing a peer-to-peer digital cash solution, stressing the importance of financial sovereignty, decentralized governance, and privacy in its core principles.
Implications for the crypto market
The SEC’s regulatory actions have a mixed impact on the cryptocurrency market. On the one hand, the intention to regulate to protect users is positive and contributes to providing confidence in the industry. However, the SEC’s extreme measures are playing against it.
These measures have called into question the performance of many projects that, until now, have proven to be solid and reliable. The uncertainty generated by the regulations has affected investor confidence and led to a market-level decline.
Cryptorank has compiled a watch list that includes all cryptocurrencies involved in SEC-initiated proceedings. Over the past 30 days, negative performance has been observed in all cryptocurrencies, leading to bearish market sentiment.
The SEC’s new offensive has caused all the noted cryptocurrencies to drop more than 15% in their price. The situation has generally impacted the crypto ecosystem with a widespread decline in market levels.
Trading platform eToro has announced that starting next July, it will restrict user access in the United States to Polygon (MATIC), Decentraland (MANA), Dash (DASH), and Algorand (ALGO) cryptocurrencies. This move comes shortly after the U.S. Securities and Exchange Commission (SEC) included these four crypto assets on its list of cryptocurrencies considered securities as part of lawsuits filed against Binance and Coinbase.
Conclusion
The impact of regulatory actions on the DeFi ecosystem has not gone unnoticed. Since April 2023, when the Total Locked-in Value (TVL) reached $94 billion, there has been a significant decline. Currently, TVL stands at around $75.6 billion. These regulatory onslaughts by the U.S. authorities have generated a strong market shock.
The year 2023 was a turbulent one in the crypto landscape. In addition to concerns around stablecoins, regulatory changes, and attacks on exchanges, there have been numerous challenges. The current situation occurs against a backdrop in which the U.S. dollar has lost its dominant position as an international exchange currency. Added to this are incipient inflation and a global economic crisis, which have increased the adoption of cryptocurrencies as a financial alternative.
I consider it crucial to find a balance between protecting the user and driving innovation in the cryptocurrency industry to move forward coherently and beneficially for the global economy; after all, the traditional financial system has brought us to this point, and DeFi came precisely to offer a global solution to the already known economic problems.