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The Future of Cryptocurrencies: Will They Be Classified as Securities in the U.S.?

Key Takeaways
  • SEC targets cryptocurrencies: SEC lawsuits identify various cryptocurrencies as unregistered securities, including popular ones like Cardano and Binance Coin
  • Implications of classification: Classification as securities brings stringent regulations, higher compliance costs, and potential market access restrictions, hindering innovation and liquidity
  • Investor protection focus: Regulatory scrutiny increases, with legal consequences for fraudulent offerings, leading to stricter disclosures and crackdowns on fraud
06-Jun-2023 By: Simran Mishra
The Future of Crypto

SEC Targets Numerous Cryptocurrencies as Securities

The classification of cryptocurrencies as securities in the United States is a complex and evolving issue. The Securities and Exchange Commission (SEC), the regulatory body responsible for securities regulation in the U.S., has been actively monitoring the cryptocurrency space.

The SEC lawsuits targeted Cryptocurrencies for identifying crypto as a Security.

In a recent lawsuit against Binance, the SEC has identified over 60 cryptocurrencies as securities.

The US SEC's lawsuit targeted Binance, Binance.US, and CEO Changpeng Zhao, levying 13 charges against them. The regulatory body claimed that popular cryptocurrencies such as Cardano (ADA), Solana (SOL), Polygon (MATIC), Binance Coin (BNB), Binance USD (BUSD), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS), and COTI (COTI) are unregistered securities.

Earlier, in a lawsuit filed in April against Bittrex, the SEC classified Ripple (XRP), LBRY Credits (LBC), and Algorand (ALGO) as securities. In February, when the SEC sued Terraform Labs, the blockchain company behind TerraUSD (UST) and LUNA, it identified 16 crypto assets as securities. 

In total, the SEC has now designated 48 cryptocurrencies and 13 Mirrored Assets as securities. This indicates the regulatory body's growing focus on bringing the crypto industry under its oversight and ensuring compliance with securities laws. However, this forced and unprecedented regulation on crypto organization is going to weaken the corporate trust in the United States.

Potential Risks and Implications of Classifying Cryptocurrencies as Securities

If cryptocurrencies were classified as securities, it would introduce a set of risks and implications for the cryptocurrency industry and market participants. Firstly, cryptocurrencies would be subject to stringent securities regulations, including registration requirements, which could increase compliance costs for issuers and potentially restrict market access for certain projects. 

This may lead to a decrease in innovation and hinder the growth of the cryptocurrency ecosystem. Secondly, classifying cryptocurrencies as securities could impact liquidity and trading dynamics. Exchanges and trading platforms would likely need to comply with additional licensing and reporting obligations, potentially reducing the availability and ease of trading. 

Thirdly, investor protection would become a key focus, with increased scrutiny and potential legal consequences for fraudulent or misleading cryptocurrency offerings. Regulators would aim to safeguard investors by enforcing disclosure requirements and cracking down on fraudulent activities. 

It is important for market participants to closely monitor regulatory developments, seek legal advice, and ensure compliance with securities laws to mitigate risks associated with potential reclassification.

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