With a significant 24-hour trading volume of $3.3 billion, as reported by CoinGecko, a group of 48 tokens, potentially categorized as securities by the US Securities and Exchange Commission (SEC), holds a substantial combined market capitalization of $91 billion. The list features well-known coins such as Binance Coin (BNB), Cardano (ADA), Solana (SOL), Polygon (Matic), and Cosmos (ATOM), to name just a few. Major players like Bitcoin, Ethereum, and XRP are absent from the list.
XRP is, of course, the only cryptocurrency with regulatory clarity backed by a Judge’s ruling. However, previous statements by the SEC revealed that, in its view, anything other than Bitcoin is a security. As the SEC chair, Gary Gensler, famously said: “Crypto financial assets have the key attributes of a security,” and “the investing public is hoping for a return.”
The recent lawsuit the SEC brought against Coinbase alleged that 13 crypto assets are securities. Yet, it’s important to acknowledge that the SEC’s classification doesn’t necessarily equate to the ultimate truth. After all, the SEC is a federal agency tasked with regulating securities, not defining them. Crypto lawyer John E. Deaton highlighted that even the SEC admitted that only courts have the authority to validate the SEC’s claims.
Despite the apparent clarity after the XRP ruling, the distinction between securities and non-securities remains ambiguous. While other countries such as Singapore, the UK and recently the EU with MiCA provide clarity for the crypto industry, the US still believes the “rules of the road are clear”, as Gensler has put it.
Nonetheless, industry observers assert that these rules remain far from clear. Ripple’s Chief Legal Officer, Stuart Alderoty, emphasized the SEC’s limited role, saying that “not all roads lead to the SEC”. Alderoty said the SEC’s approach to regulating crypto was a political power play.
On the other hand, Charles Hoskinson, the founder of Cardano, stated in front of the U.S. House Subcommittee on Commodity Exchanges, Energy and Credit that regulation based on categories was the wrong approach to dealing with decentralized systems.
“Principles-based regulation, which is more flexible, can adapt and evolve alongside the nascent technology without strangling an industry that has only started and forcing companies abroad,” Hoskinson said.
In his view, many, if not most, cryptocurrencies do not fall in the category of securities or commodities but are rather a new asset class that has its own distinct features. Therefore, he believes we need first to answer what regulation needs to achieve – whether it’s safeguarding investors, ensuring market stability, or addressing matters like sanctions compliance.