Analysis: What are the common characteristics of cryptocurrencies listed by the US SEC as securities?

From| Cryptocurrency Analyst Miles Deutscher

Compiled| BlockingNews

On the evening of June 5th, Beijing time, the US Securities and Exchange Commission (SEC) filed a lawsuit against the cryptocurrency exchange Binance and its CEO Changpeng Zhao, and one day later filed a lawsuit against the cryptocurrency exchange Coinbase. In these two lawsuits, the US Securities and Exchange Commission designated 19 tokens as “securities”, a decision that could have a huge impact on related tokens and even the entire crypto industry.

This article will briefly sort out these tokens and explore the commonalities among them.

First, the cryptocurrency tokens recognized by the US Securities and Exchange Commission as securities include:

Listed on Binance: ATM, BNB, BUSD, COTI

Listed on Coinbase: CHZ, NEAR, FLOW, ICP, VGX, DASH, NEXO

Listed on both Binance and Coinbase: SOL, ADA, MATIC, FIL, SAND, MANA, ALGO, AXS

What are the commonalities among these cryptocurrency tokens? There are mainly three:

1. Each token has had an initial sale/fundraising activity.

2. The project party of each token has promised to improve the protocol through continued development (including business development or the use of marketing expenses).

3. The official social media of each token has displayed the characteristics or advantages of the corresponding protocol.

So why did the US Securities and Exchange Commission designate these tokens as “securities”? This is where the Howey test comes into play. The Howey test has four criteria to determine whether “something” is an investment contract (security), namely:

1. “Something” involves a money investment

2. “Something” targets a specific business

3. “Something” has profit expectations

4. “Something” benefits from the efforts of others or the issuer

The US Securities and Exchange Commission claims that the 19 tokens sued this time have attributes that meet at least 3 of the above four criteria, thus generating “profit expectations” and meeting the requirements of the Howey test.

The next question is, what impact will it have if these 19 tokens are classified as securities? There are also three points:

1. These tokens will not be traded on US exchanges.

2. These tokens may be delisted from US exchanges like Coinbase and Robinhood for a period of time.

3. These tokens bring regulatory adjustments and set industry precedents.

The main issue here is that the Howey test is an outdated, relatively limited framework created in 1946, and applying regulations established in 1946 to an entirely new digital asset industry is certainly challenging. The enforcement actions taken by the US Securities and Exchange Commission have indeed been somewhat rash, lacking consideration for industry differences and foresight, while the UAE, UK, and Australia have taken different, more thoughtful enforcement approaches.

For the development and future growth of the entire industry, as well as for legitimate and compliant integration into the financial system, the cryptocurrency industry needs clear regulatory and policy guidance from the US Securities and Exchange Commission. This day will come, but before that, fasten your seatbelts, as this journey will be bumpy.

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