Several crypto exchanges in the U.S. continue to sell more than a dozen tokens or digital coins that have been classified as securities by the Securities and Exchange Commission (SEC), as per a Wall Street Journal report. This makes them illegal because securities can only be sold if they are registered with the SEC and the issuers must offer financial and risk disclosures.
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Crypto Tokens Identified as Securities
As per the report, the SEC and U.S. courts have identified 76 tokens as securities since late 2017, of which 16 are still available for trading on one or more major U.S. crypto exchanges. It is interesting to note that the number of tokens classified as securities by the SEC tripled in 2022 compared to the prior year.
That said, the proportion of tokens labeled as securities by the SEC is quite low, given that there are more than 23,000 cryptocurrencies (including those that do not trade in the U.S. as per CoinMarketCap). This reflects little efforts on the regulation front. However, the SEC contends that the review of each token requires in-depth legal analysis.
The SEC specifies that a company must not offer or sell securities unless the offering is registered with it. The agency contends that crypto exchanges selling unregistered tokens may not be complying with applicable laws, including federal securities laws. However, several crypto firms have argued about the classification of crypto tokens as securities and have urged U.S. regulators to provide more clarity on this aspect and other rules.
In fact, some crypto firms have said that they will move overseas if the U.S. continues with its crackdown on crypto firms without providing clarity on regulations governing digital assets. Recently, crypto exchange Coinbase Global (NASDAQ:COIN) responded strongly to the SEC’s Wells Notice, arguing that the agency’s enforcement action against the company would “fail on the merits.”
Overall, the SEC is intensifying its crackdown on crypto firms, even as they raise their concerns about the ambiguity regarding regulations. The SEC is trying to protect investors by highlighting the significant risks associated with the crypto market, especially after the FTX fiasco.
On Monday, Bitcoin (BTC-USD) traded below $28,000, as crypto exchange Bittrex filed for bankruptcy, weeks after being sued by the SEC. The SEC alleged that Bittrex failed to register as a national securities exchange, broker, and clearing agency, even as it facilitated buying and selling of crypto assets that were offered and sold as securities.
Despite all the concerns related to crypto risks, Bitcoin, the largest cryptocurrency, has rallied significantly since the start of 2023.
