What’s a Security? Crypto.com Challenges SEC’s Classification Efforts, files case

• Crypto.com filed a lawsuit against the SEC for classifying cryptocurrencies as securities.
• The SEC’s actions have significant implications for the regulatory position of digital assets.
• The U.S. regulator investigated the firm in February 2023 and issued a notice in August 2024.

Crypto.com has initiated a lawsuit against the U.S. Securities and Exchange Commission (SEC) for classifying cryptocurrency as a security. The legal battle highlights the ongoing debate over how digital assets are regulated in the U.S.

Under U.S. law, a cryptocurrency is considered a security if it qualifies as an investment contract, wherein investors expect profits based on the efforts of others. The SEC has been working to apply these regulations to cryptocurrencies, aiming to ensure that they meet the existing standards.

On October 10, the CEO of Crypto.com Kris Marszalek announced a lawsuit against the SEC. This marks a significant moment in the ongoing clash between cryptocurrency exchanges and U.S. regulators. The SEC began investigating Crypto.com in February 2023, issuing a notice of enforcement action in August 2024.

The firm argued that the SEC has overstepped its authority by attempting to categorize nearly all trades on its platform as securities transactions, regardless of the method of its sale.

SEC’s Classification of Cryptocurrencies

The SEC has taken similar actions against other exchanges, including Coinbase and Kraken, asserting that certain cryptocurrencies—like SOL, ADA, BNB, FIL, and FLOW—should be considered as securities. However, Crypto.com argued that applying the securities laws to digital assets is a misinterpretation of those regulations.

If the court were to approve the SEC’s classification, then the consequences could create a massive ripple across the cryptocurrency market. This would further increase compliance requirements for exchanges and potentially limit user access to certain digital assets.

Impact on the Cryptocurrency Market

This legal action comes at a pivotal time for Crypto.com, which has experienced rapid growth, increasing its BTC trading volume to nearly 30%, overtaking competitors like Bybit. Although regulatory uncertainty looms, market observers wait in anticipation for the verdict of the lawsuit. The Court’s decision would strongly influence the market structure of the firm and its future developments.  

Notably, the U.S. remains to be a key market for Crypto.com, with over 26% of its web traffic in the last month coming from native users, which can be used as a proxy for users’ location. Apart from the U.S., major downloads of the exchange were identified in the UK and Canada.