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The U.S. securities regulator SEC has been looking for ways to increase its pressure on the cryptocurrency markets for a long time. While the enforcement division is working overtime, we have seen lawsuits filed against the largest cryptocurrency exchanges. Moreover, the regulatory agency speaks with satisfaction about the billions of dollars in penalties.
Unregistered Crypto Securities
The United States Securities and Exchange Commission (SEC) filed lawsuits against Binance and Coinbase exchanges within a few days in the middle of this year. In November, it targeted the Kraken exchange. Gensler often compares the cryptocurrency industry to the wild west, stating that companies accept lawlessness as normal for faster growth and that there will definitely be a price to pay.
The lawsuit filed against the Kraken exchange in November typically includes an accusation of being an unregistered securities exchange. However, the SEC does not provide clear guidance for platforms that want to offer services in a registered manner. If you don’t know how to do something and those who are supposed to guide you are not taking on this responsibility, you should not be blamed for the mistakes you make.
Currently, while Gensler claims that almost all altcoins are securities, another U.S. regulatory agency, the CFTC, claims that more than 50% of them are commodities. So, what should cryptocurrency exchanges do to avoid the wrath of the SEC when even regulatory agencies disagree among themselves? Probably the only thing they can do is to allow the purchase and sale of no assets other than Bitcoin. How absurd does that sound?
Why Does the Battle Not End?
The SEC insists that blockchain-based assets, cryptocurrencies, are just like old things, like stocks. However, their structure, purpose, and pricing system are much different. The SEC has two paths ahead.
Either it will comprehensively examine all cryptocurrencies traded in the U.S. and invite them to register. Indeed, this is the toughest path because it requires a massive workforce. In addition, serious legislations must be created to provide guidance to them. After all these, they can prevent unregistered tokens from being traded in their jurisdiction and can sue exchanges like Kraken and Coinbase for offering unregistered tokens despite all of SEC’s efforts.
Or it will take and is taking the second path. Without providing any guidance, without creating legislations, the SEC stamps altcoins as securities in a somewhat arbitrary manner through a relaxed howey test application. It sues exchanges and tokens for offering unregistered issuance and brokerage services.
So what’s the result? Cryptocurrency bills expected to pass the House of Representatives in 2024 could increase legal clarity. However, Gensler could oppose these as well and prevent them from passing the Senate with the support of the Democrats. So this legal battle will continue for much longer.
