The recent lawsuits by the SEC against crypto exchanges Binance and Coinbase have had a big impact on the industry. The SEC is one of the most powerful regulators in the world, and their actions against two major players in crypto caused a big drop in the market. A week later, the market still hasn’t recovered.
The lawsuits against Binance and Coinbase are a major turning point for the cryptocurrency market. Almost all assets have fallen, and users have withdrawn their funds from major exchanges.
The SEC accuses these “mastodons” of trading in unregistered securities. This is the first time the US regulator has been so hostile to such big players in the crypto world. The lawsuits will have far-reaching implications for the entire cryptocurrency market, especially for projects whose tokens are now classified as securities by the SEC.
The SEC has named several dozen tokens as securities in these court cases, which has caused mixed reactions from the community.
The SEC uses the Howey test to analyze assets against the term “security,” which consists of three points:
- An investment of money
- In a common enterprise
- Reasonable expectation of profits derived from the efforts of others
Most of these coins are PoS tokens, with Dash being the only Proof of Work coin. The SEC’s stance is clearly against staking tokens and staking providers registered in the US, as stakers receive profits from others’ transaction fees. This falls under point 3 of the Howey test and is similar to dividend mechanics.
Many of the coins on the list are old coins that were added to the list after lawsuits related to crashes, scams, or ICO pyramid schemes. It also includes 13 mirrored assets, tokenized shares using Mirror Protocol.
Consequences for the Crypto World
The addition of many high-profile projects to the crypto securities list has damaged their reputation. Being on this list is not good news for projects that are still alive, as many unexpected actions could follow. Many of these tokens are underperforming the market, and there is a significant drop in their value. CryptoRank has created a watchlist to track their performance.
How can you make the most of the watchlist?
It is always good to stay informed. But it is even better to know how to apply this information. If you trade in a US jurisdiction, be wary of these coins. Their appearance on the SEC’s list is a big red flag. But if you don’t believe in SEC’s threats and want to cash in on this Black Swan moment, there are several tokens on this list that have lost significantly in price but remain strong and independent projects (MATIC, SOL, ATOM, etc.).
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Many well-known projects now face the need to adapt to a new environment where their token is considered a security. This has triggered a fall in the price of these assets, but the worst is yet to come. Reputational costs, delisting from major exchanges, and investors’ fear of buying tokens can all affect projects’ long-term development plans.
Many US-based crypto exchanges have already begun delisting those coins and tokens. Retail investment providers, such as eToro and Robinhood, have also delisted them. This will lead to a massive outflow of American investors’ funds.
While the SEC’s power is only possible in the US, many foreign regulators and international institutions are eager to adopt the SEC’s expertise. We should not be surprised if similar lawsuits or crypto-securities lists arise in other countries.
The total capitalization of all coins called securities is about $100B, which is around 10% of the market. This could have a negative impact on the performance of the entire market.
What Can We Do Now?
As long as the SEC’s stance on digital currencies remains negative, it is difficult to predict what the regulator will do next. However, the regulator is unlikely to soften its stance dramatically in the near future.
The legal battle may drag on for months, and the outcome is not clear at all. What we can say for now is that the “free development” period of the cryptocurrency sector is coming to an end, and now all projects will have to adapt to the new conditions, changing their usual development models.
It is worth being wary of coins on this list, especially for US residents and users of US crypto exchanges. Take care of the safety of your assets, but be sure to do your own research.