Is the SEC Going to Force Cryptocurrencies into Registering as Securities?

For a very long time, it has been unclear whether cryptocurrencies should be treated as commodities or securities. And everyone is aware of the Securities and Exchange Commission (SEC)’s position on this. The SEC has often said that most cryptocurrencies are in fact securities, and it has been in a legal battle with Ripple for over two years on the agency’s contention that Ripple’s XRP currency is a security. If the SEC prevails in this action against Ripple, it might be catastrophic for the cryptocurrency industry.

Coinbase’s Plan to Withstand SEC’s Crypto Crackdown

Charles Gasparino of Fox Business has reported that Coinbase has disclosed to Fox that the company has a strategy to withstand a regulatory crackdown on digital assets by the SEC. This strategy involves the use of broker-dealers to trade cryptocurrencies registered as securities.

In May 2022, Coinbase disclosed that it had submitted a shelf registration statement to the SEC. This shelf registration statement is designed for use in connection with anticipated future offerings, such as the issuance of new securities for general corporate purposes.

At the time, Coinbase said:

“While we have no immediate plans to offer securities at this time, by filing the shelf registration statement now, we will be able to offer and sell securities in the future should we choose to do so.”

In a related development, Coinbase recently reached a settlement with the New York Department of Financial Services over a lawsuit that had been brought against the company. As part of the settlement, Coinbase will pay a fine of $50 million and spend another $50 million in compliance-related activities. The authorities claimed that the company’s anti-money laundering program had been plagued by problems for an extended period of time.

Will Cryptos Be Considered As Securities?

If the SEC prevails in its case against Ripple and XRP is ruled to be a security, then every cryptocurrency apart from Bitcoin may be required to register as a security. For years, at the demand of the infamous crypto critic SEC Chair Gary Gensler, the agency has pursued and investigated crypto issuers and exchanges for allegedly breaking existing securities legislation in the United States. Gensler wants crypto exchanges to register as national securities exchanges.

The Commodity Futures Trading Commission (CFTC) and the SEC have been at odds with one another more and more frequently about a fundamental question: should digital assets such as cryptocurrency be classified as commodities or securities?

When led by its present chair, the SEC is not a crypto-friendly organization; as a result, classifying these assets as securities in a way that is compliant with the law would put an already struggling industry in jeopardy.

When it comes to evaluating whether something is a security or not, Gensler is of the opinion that more conventional procedures, such as the Howey Test, are perfectly capable of being applied to virtual currencies. Let’s just hope Ripple wins this case.