The Disclosures
The U.S. Securities and Exchange Commission (SEC) has been questioning Grayscale Investments LLC on the company’s securities law analysis of tokens in some of its less well-known crypto trusts. The investigation, which Grayscale revealed in unnoticed papers made in June and mid-August, puts doubt on the viability of the trusts at a time when the biggest digital asset manager in the world is already grappling with a sharp decrease in the value of its assets owing to the continuing crypto winter.
The disclosures may be seen in filings for trusts that own native coins for the Horizen (ZEN), Zcash (ZEC), and Stellar (XLM) blockchains. Grayscale stated in the papers that it was responding to SEC officials from the Division of Corporate Finance and Enforcement, the investigative branch that lately intensified its oversight of cryptocurrencies.
Trust Company Assums These Cryptos are not Securities
The SEC’s inquiries emphasize the unpredictability of Grayscale’s selection of crypto trusts that support brokerage accounts. It also addresses a regulator that is more active and cracking down on tokens that it thinks ought to be governed by American securities law.
Grayscale suggests crypto trusts as a simple method for regular investors to invest in cryptocurrency tokens together with equities and bonds. These trusts contain billions of dollars’ worth of assets, with the most well-known ones being those for bitcoin (BTC) and ether. Grayscale is a division of the Digital Currency Group (ETH).
In comparison to Grayscale‘s approximately 18.7 billion USD in assets managed through funds and trusts, ZEC, ZEN, and XLM account for barely 40 million USD in total, making them insignificant outposts in an empire that formerly spanned a far wider area. Prior to its value collapsing along with the rest of the cryptocurrency markets in November of last year, Grayscale enjoyed a market cap of almost 60 billion USD. Even though these three trusts are rather small, any ambiguity regarding their legal status, namely whether they are securities, heightens the risks associated with Grayscale’s regulatory gamble. According to the documents, its trust company assumes that these cryptocurrencies are not securities; nevertheless, if it finds that they are, it may have to suspend the trusts.
Source: https://www.thecoinrepublic.com/2022/09/01/xlm-zec-and-zen-may-be-securities-says-grayscale/