The classification of ethereum as a security poses not only risks to the entire crypto market, but it could also likely lead to many crypto teams exiting the space. This designation might hinder progress and potentially reverse years of advancements in the cryptocurrency market. The U.S. Securities and Exchange Commission has likely delayed its decision […]
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Prometheum’s Ethereum Custodial Launch Puts SEC’s ETH Classification In The Spotlight
Prometheum, an “alternative” trading platform for crypto “securities” assets, has recently announced the launch of its custodial services for Ethereum (ETH). This move has significant implications for the legal status of the second-largest cryptocurrency by market capitalization.
Fortune Magazine reported that the company’s strategy is to compel regulators, particularly the Securities and Exchange Commission (SEC), to recognize Ethereum as a security.
SEC Pressured To Settle Ethereum Legal Status
Per the report, Prometheum, based in New York, has positioned itself as a compliant player in the crypto industry by claiming to have discovered a path to operate within existing laws.
The company received regulatory approval in 2021 to operate as an alternative trading platform for securities. It gained further attention when it obtained a special-purpose broker-dealer license from the Financial Industry Regulatory Authority (FINRA).
The license allows them to operate as a broker-dealer in “digital asset securities,” a designation no other firm has achieved. This has prompted crypto companies and even members of the US Congress to call for investigations into the firm’s activities.
Previously, the SEC refrained from definitively classifying Ethereum as a security despite declaring several other cryptocurrencies as such.
Prometheum aligns with the SEC’s assessment that most cryptocurrencies are securities and argues that Ethereum can be listed as a security under an exemption called Rule 144, typically used for trading restricted stocks.
The embattled company claims it can use blockchain data to determine whether the assets have been circulating for over a year, a crucial factor in claiming the exemption.
What’s interesting is that Prometheum’s custodial services for Ethereum could potentially force the SEC to determine Ethereum’s legal status. The company’s registered status with FINRA and the SEC, prominently displayed on its website, adds weight to its claim.
Legal experts and academics speculated that the SEC may be forced to rule on Ethereum’s classification due to Prometheum’s custodial launch. This decision could have far-reaching consequences for the crypto industry, challenging the industry’s argument that cryptocurrencies cannot operate under existing securities laws.
Backlash Mounts As Prometheum Shakes Up Crypto Regulations
SEC Chair Gary Gensler, who has intensified enforcement efforts following the collapse of FTX, has emphasized the sufficiency of existing rules while filing lawsuits against exchanges for failing to register with the agency.
Prometheum’s approach contrasts with other crypto exchanges like Coinbase, which argue that the existing rules are outdated. Prometheum’s strategy has drawn criticism from the crypto industry and Republican lawmakers who accuse Gensler of supporting the firm to advance his regulatory agenda.
Overall, Prometheum’s introduction of Ethereum custodial services has thrust the debate over Ethereum’s legal classification into the spotlight.
This move could compel the SEC to decide whether Ethereum should be classified as a security, challenging the crypto industry’s argument for new laws.
While the success of Prometheum’s approach is still uncertain, it remains to be seen how subsequent SEC administrations will respond and whether institutional investors will be attracted to Prometheum’s compliant approach.
Currently, ETH is trading at ,428, reflecting a marginal 0.5% price increase in the last 24 hours.
Featured image from Shutterstock, chart from TradingView.com
Blackrock’s Spot Bitcoin ETF Filing Update Addresses Potential Classification of BTC as a Security by SEC
Blackrock, the world’s largest asset manager, has warned in its latest spot bitcoin exchange-traded fund (ETF) filing update of the potential for bitcoin to be classified as a security by the U.S. Securities and Exchange Commission (SEC), state regulators, or court rulings. “If a digital asset is determined or asserted to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non‑security digital assets,” Blackrock cautioned.
Bitcoin’s Potential Security Status
Blackrock, the world’s largest asset manager, addressed the possibility of bitcoin being classified as a security in its latest amended application for a spot bitcoin exchange-traded fund (ETF), filed with the U.S. Securities and Exchange Commission (SEC) on Monday. The new filing update details:
Any enforcement action by the SEC or a state securities regulator asserting that bitcoin is a security, or a court decision, to that effect would be expected to have an immediate material adverse impact on the trading value of bitcoin, as well as the [spot bitcoin ETF] shares.
“If a digital asset is determined or asserted to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non‑security digital assets, which in addition to materially and adversely affecting the trading value of the digital asset is likely to significantly impact its liquidity and market participants’ ability to convert the digital asset into U.S. dollars,” the filing adds.
Blackrock brought up the example of the SEC suing Ripple and its executives over the sales of XRP. “In the years prior to the SEC’s action, XRP’s market capitalization at times reached over 0 billion. However, in the weeks following the SEC’s complaint, XRP’s market capitalization fell to less than billion,” the asset management firm noted.
Commenting on Blackrock’s warning about the possibility of bitcoin being considered a security, commercial litigator Joe Carlasare wrote on X on Tuesday:
Interesting update to Blackrock / Ishares S-1 filing regarding the concern that the SEC could take an approach that bitcoin is a potential security. Seems silly, but apparently the SEC wants that language in there.
He clarified that this wording is only in Blackrock’s most recent amendment. “Prior versions didn’t have it,” he pointed out, emphasizing that “it has been adopted by Blackrock as a potential disclosed risk for ETF investors.”
Responding to Carlasare’s assertion that the SEC wants this warning in the filing, former SEC internet enforcement chief John Reed Stark opined on X: “Joe might be right here. Why would the SEC go to all the trouble of requiring a proviso like this if the SEC planned to decline the application?”
However, voicing his usual skepticism, Stark stressed: “While I still believe the 90% likelihood of an SEC bitcoin spot ETF approval seems somewhat random, Joe is a great lawyer who may be spot-on in his thoughtful and meticulous analysis. On the other hand, it remains difficult to predict the SEC actions behind closed doors.” Nonetheless, the former SEC official cautioned:
It seems to me that supporting a bitcoin spot ETF for Chair Gensler would not only evidence capitulation but is also inconsistent with his behavior and practice on so many other fronts.
“It just comes down to human nature: Does Chair Gensler really want his legacy to be the approval of a bitcoin spot ETF, which would represent such an obvious personal loss to the mob and such an obvious threat to investors?” Stark concluded. Gensler has said several times that he views all crypto tokens, except bitcoin, as securities.
What are your thoughts on Blackrock warning about the potential classification of bitcoin as a security? Let us know in the comments section below.
Former SEC Chair Discusses ‘Appropriate Way’ to Regulate Crypto — Says Classification Issues Are ‘Overblown’
Former U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton has discussed what he believes to be the “appropriate way” to regulate crypto. The former regulator added that “the classification issues” about whether a crypto token is a security or a commodity are “overblown,” emphasizing: “Most of those decisions are pretty easy.”
Ex-SEC Chair Discusses Crypto Regulation
Former chairman of the U.S. Securities and Exchange Commission (SEC), Jay Clayton, discussed cryptocurrency regulation at the Council on Foreign Relations last week.
Responding to a question about what the appropriate way to regulate the crypto industry would be, the former SEC chair stated:
The appropriate way to regulate crypto is to recognize that it’s a technology, not a product.
“It’s a different technology for almost all cases, delivering a product that we already know, sometimes in a more efficient way,” he added.
“I’m very sympathetic … to the entrepreneurs who want to reach out to the public to raise capital, and I’m very sympathetic to the retail investors who want those opportunities,” Clayton also said. Noting the widespread frustration that prevailed during the initial coin offering (ICO) craze and among cryptocurrency enthusiasts, he stressed: “We should be looking at making it easier to raise capital for small or medium-sized companies, and making it easier for nonaccredited investors or even accredited investors to participate in those opportunities.” He continued: “I don’t know if it’s gonna be worth a little or a lot but I’m at a point where I think the market can decide.”
Commenting on the ongoing debate in the U.S. about whether certain crypto tokens are securities or commodities, the former SEC chief opined:
I think the classification issues about whether a product is a security or a commodity are overblown. Most of those decisions are pretty easy.
Commenting on Clayton’s statement claiming that the decision on whether a crypto token is a security or a commodity is easy, Ripple CEO Brad Garlinghouse wrote on social media platform X: “I’m in disbelief.” His company just spent about 0 million fighting the SEC over the status of XRP. SEC Chairman Gary Gensler is of the opinion that all crypto tokens, except bitcoin, are securities.
What do you think about the statements by former SEC Chairman Jay Clayton on crypto regulation? Let us know in the comments section below.
Cardano’s Charles Hoskinson Clashes With Blockstream’s Adam Back Over Crypto Security Classification
Charles Hoskinson, co-founder of Input Output Global (IOHK) and the Cardano blockchain initiative, recently expressed his frustration in a video over the U.S. regulator’s decision to categorize the cryptocurrency cardano as a security. He’s perplexed and critical about the exemption of bitcoin from being tagged as a security, mocking the situation as a “pathetic joke” and pointing out the apparent free pass granted to “Team Orange.”
Hoskinson Shows Frustration Over ‘Team Orange’ Getting a Pass
In a video clip shared by Altcoin Daily on a social media platform referred to as X, Charles Hoskinson passionately discussed his views on cardano’s (ADA) classification as a security, contrasting it with bitcoin (BTC) and others in the crypto space. He questions the logic, highlighting what he perceives as inconsistencies and unfair treatment in the regulatory approach.
Hoskinson, in the video, questions the absence of expectation of profit among fervent bitcoin supporters, known as the “Orange pill moon boys.” He criticizes the perceived decentralization of Bitcoin, noting that subpoenaing or targeting a few entities could potentially lead to a 51% attack on the network due to the nature of its hashpower distribution. He lambasts this oversight as a glaring, “pathetic f***ing joke.”
Following the video’s release by Altcoin Daily, users of platform X reacted to Hoskinson’s assertions. In a thread on X, Blockstream founder Adam Back responded, tagging Hoskinson. Back simplified the distinction, stating, “[Charles Hoskinson] it’s very simple: Bitcoin did not do an ICO, most people thought it had no value, it was mined from zero, it is decentralised, there is no CEO, ICO warchested ‘foundation,’ incorporation etc. so Cardano, ETH etc clearly pass Howey, Bitcoin is a commodity and does not.”
Responding to Back, Hoskinson clarified that Cardano didn’t have an ICO. Instead, he detailed an airdrop and subsequent trading of ADA by a diverse group of individuals who also used the platform for various projects.
He further elaborated:
A voucher sale of a different asset outside of the United States, priced in Yen, settled in Bitcoin, explained in Japanese to Japanese citizens, and without a single U.S. participant does not constitute an ICO of ADA.
As per Cardano’s Genesis records, these ADA token vouchers were distributed through sales in Asia from October 2015 to early January 2017. A Japanese company facilitated these sales, which garnered 108,844.5 BTC. The debate continued with Back countering Hoskinson’s explanation, suggesting that an airdrop, premine, and some market activity still classify as an ICO. He also pointed to the reliance on a management team for profit expectations.
Hoskinson: ‘I’m Done With Team Orange Lobbying the U.S. Government to Criminalize Everything but Bitcoin’
Hoskinson refuted the notion that an airdrop equates to an initial coin offering (ICO), citing even the SEC’s ambiguity on the matter. He pointed to the SEC’s settlement with EOS and Block.one as a case in point. Hoskinson emphasized that ADA was not publicly offered by a centralized entity, contrasting it with Ethereum’s ICO for ether, which has not been classified as a security.
Expressing his frustration, Hoskinson criticized the bitcoin community for labeling non-Bitcoin projects as inferior or fraudulent. He condemned what he perceived as efforts by Bitcoin advocates to push U.S. authorities to outlaw cryptocurrencies other than Bitcoin. He also dismissed the argument that Bitcoin’s mining process was fundamentally different, noting that Satoshi Nakamoto, Bitcoin’s creator, initially had complete control over the network and remained anonymous due to legal uncertainties.
The Blockstream executive responded by comparing bitcoin with gold and diamonds, arguing that none of these are securities. Despite claims that gold prices are influenced by sovereign entities and diamond prices by companies like Debeers, Back asserted that they, like bitcoin, are commodities. He maintained that ether, ADA, and similar cryptocurrencies are, in contrast, securities. Furthermore, he emphasized that these assets are “both unregistered, and unregisterable securities too.”
What do you think about the debate between Charles Hoskinson and Adam Back? Share your thoughts and opinions about this subject in the comments section below.
Judge Denies CEL Valuation Boost; Evades CEL’s Security Classification in Celsius Saga
In the unfolding saga of the Celsius bankruptcy case, a proposal was presented to elevate the defunct crypto enterprise’s native token, CEL, to a valuation of .80 each. Yet, the overseeing U.S. bankruptcy judge, Martin Glenn, dismissed this proposal. Consequently, Celsius’s creditors are rallying to set the token’s worth at a more modest .25 apiece.
Judge Denies Several Motions in Celsius Bankruptcy Case
During the Celsius legal proceedings, creditors pushed for CEL’s valuation to reflect its pre-bankruptcy rate of .80. They contended that CEL’s worth had been artificially tampered with. Despite their fervent arguments, judge Glenn was unconvinced and shot down the motion, among several others.
The next chapter in this drama? Creditors are now preparing to vote on a revised valuation of .25 for each CEL. Whether judge Glenn gives this the nod remains a gripping question. As of today, CEL’s market performance stands at a modest .118 per token, experiencing a dip of over 3% against the U.S. dollar in the last day alone.
Its total market cap hovers around .4 million as of Saturday, August 26, 2023. The past month hasn’t been kind to CEL either, plummeting 25.9% against the U.S. dollar. This marks a staggering 98.5% fall from its zenith of per token on June 04, 2021.
In another intriguing twist, a creditor invoked a recent XRP partial ruling, hoping judge Glenn would “recognize the legal precedent” from that case. But in a consistent fashion, the judge dismissed this motion as well, sidestepping the need to classify CEL as an unregistered security.
Glenn stated, “Nothing in the motions, this order, or announced at the hearing constitutes a finding under the federal securities laws as to whether crypto tokens or transactions involving crypto tokens are securities, and the right of the United States Securities and Exchange Commission and the Committee to challenge transactions involving crypto tokens on any basis is expressly reserved.”
What do you think about judge Glenn’s recent decisions in the Celsius case? Share your thoughts and opinions about this subject in the comments section below.
SEC’s Classification of So-Called Crypto Securities Amounts to $98 Billion in Combined Value
Throughout the last year, the U.S. Securities and Exchange Commission (SEC) has identified numerous crypto assets as securities in cases involving Binance, Bittrex, Coinbase, Terra’s Do Kwon, Tron’s Justin Sun, and several more. The aggregate worth of these prominent digital assets, considered securities, currently amounts to billion, making up over 8% of the cryptocurrency market.
Alleged Crypto Securities Identified by SEC Account for 8% of Crypto Economy
The SEC has classified a significant number of crypto assets as securities within its purview; these include decentraland (MANA), dash (DASH), algorand (ALGO), beaxy token (BXY), solana (SOL), binance coin (BNB), cardano (ADA), and several others. Combined, these purported security designations represent a total value of billion as of Wednesday. Moreover, within the past 24 hours, these coins registered approximately .47 billion in global trading volume.
The top five crypto assets deemed securities, in the SEC’s view, by market valuation include binance coin, cardano, solana, tron, and polygon. These account for .93 billion of the overall billion figure or 74.41%. Following polygon in terms of the highest valuations among supposed crypto securities are ton coin, binance usd, cosmos, filecoin, internet computer, near protocol, algorand, and sandbox.
These eight tokens represent .54 billion in value or 18.91% of the cumulative billion. This implies that the leading 13 alleged crypto securities constitute 93.32% of the market value of the 66 classified.
Some tokens cited in this list like Mirror Protocol’s synthetic stock tokens possess no tangible worth but were still regarded as securities by the SEC along with luna classic (LUNC) and terrausd classic (USTC). Out of all tokens responsible for 93% of the purported crypto securities lists’ value, only two experienced losses within the past seven days. BNB dropped 2.37% this past week, while internet computer declined by 2.02%.
Though the SEC has deemed these crypto assets as securities, this doesn’t mean they actually are. Recently, Ripple Labs secured a partial victory concerning its crypto asset’s programmatic sales. Binance, Coinbase, Bittrex, and others have also been fighting the SEC in court; the outcomes of these cases may provide additional clarity.
While the crypto assets classified as securities by the regulator initially witnessed significant downturns following the SEC’s disclosure, most of these assets have reversed course and recorded gains since the recent XRP ruling.
What impact do you think the SEC’s classification of these crypto assets as securities will have on the future of the cryptocurrency market?
US SEC Looks to Expand Accredited Investor Classification
n U.S. SEC seeks public commentary on expansion of accredited investor status to more investors who can prove knowledgen
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Bakkt Focusing on Bitcoin Due to Its Liquidity and Classification as a Commodity
Following the cryptocurrency market’s foray down to fresh yearly lows, investors are becoming increasingly alert to news regarding upcoming institutional-aimed products, including that being offered by Bakkt.
On the heels of Bakkt’s recent decision to delay their platform’s launch until late-January, 2019, the company released an update on their Twitter account informing the public about why Bitcoin will initially be their primary focus. It noted that its liquidity and classification as a commodity by the U.S. Commodities and Futures Trading Commission (CFTC) are the primary driving factors behind their decision.
In a two-part Twitter thread, they explain this, saying:
“We’ve been asked why we’re starting with Bitcoin. Here’s why: Bitcoin today accounts for over half of total crypto market capitalization and has been deemed to be a commodity, and its derivatives are regulated in the U.S. by the CFTC… As the world’s most liquid and widely distributed cryptocurrency, and where we’ve seen the most customer demand, Bitcoin’s profile creates a liquid product on which to build a futures contract.”
Related Reading: Why Are Novogratz, Fidelity, And Bakkt Banking On Institutional Crypto Investors?
Bakkt Delays Launch Until January
The importance of platforms like Bakkt has ballooned since the cryptocurrency markets crashed over the past couple of weeks, as many investors now feel that institutional investors will be able to resurrect the markets and lift them back to their all-time highs and beyond.
Despite this, Bakkt’s launch has now been delayed by several months, meaning that investors will have to wait longer to see how the markets unfold naturally without the potential influence of Wall Street funding.
In a November 20th Medium post from Kelly Loeffler, Bakkt CEO, she explained that the exchange will be delaying their launch until January 24th, 2019, citing their commitment to releasing a stellar platform that is fully functional on day one as the reasoning behind this decision.
“Given the volume of interest in Bakkt and work required to get all of the pieces in place, we will now be targeting January 24, 2019 for our launch to ensure that our participants are ready to trade on Day 1,” she said.
Despite there being a delay in the launch, which was originally scheduled to occur on December 12th, 2018, Loeffler also noted that they have made significant progress in their discussions with regulatory authorities in the U.S. and have been working hard to onboard as many customers as possible.
Furthermore, she offered readers several answers to persisting questions in the FAQ section of the Medium post, including the aforementioned reasoning behind their decision to focus exclusively on Bitcoin (which was cited both on their Twitter and in the Medium post), and clarification as to how the price of Bitcoin will be established.
“Given the transparency and regulation of the futures markets, the futures price in a one-day physically settled Bitcoin contract will serve as a price discovery contract for the market. There is no reliance on cash platforms for settlement prices for pricing the daily Bitcoin futures contract,” she noted.
How institutional investors take to Bakkt and the Bitcoin futures product they offer will give the markets a huge signal as to whether or not traditional retail investors are ready to enter the cryptocurrency markets, or if they are simply too nascent and volatile in their current state.
Featured image from Shutterstock.
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Crypto Here to Stay but Needs Classification, Says European Commission Vice President
n The E.U. will focus on developing crypto asset classifications and regulatory mapping, since crypto is here to stay, says European Commission Vice Presidentn
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