Several Platforms In The Crosshairs Of The SEC

In addition to Coinbase, several platforms are in the crosshairs of the SEC. We knew the execrable relations between Coinbase and the Securities Exchange Commission (SEC). Now a source reveals that the Californian platform is not the only one to be in the sights of the American stock market policeman. In reality, it would be all the exchanges present in the United States that would be the subject of an investigation.

Coinbase, FTX, Binance… all are in the sights of the SEC

Collected by Forbes, the revelations come from an anonymous member of the staff of Senator Cynthia Lummis, a member of the Republican party and an elected official from the State of Wyoming. According to this source, all the exchanges are already under investigation, each “at varying stages” of progress.

Important detail: Coinbase is not the only platform targeted, since the American branch of Binance (the No. 1 platform in daily trading volumes) would also be in the crosshairs of the regulator.

No information was given on the nature of the elements alleged against each platform, but it is a safe bet that the files have similarities in substance.

On July 26, the SEC publicly announced an investigation into Coinbase. The investigation aims to determine whether the 150 digital assets offered by Coinbase to its customers fall into the category of negotiable goods and materials (“  commodities  ”) or securities and transferable securities (“ securities ”).

ALSO READ: The SEC Opens A New Investigation Against Coinbase

Commodities vs Securities: a distinction at the heart of the showdown between the SEC and the exchanges

The distinction is essential since it would have the effect of requalifying all of Coinbase's activity (and therefore of all exchanges) as a stockbroking activity. With the obligation to register with the SEC, which will therefore regulate its activity.

A possibility that Coinbase rejects for at least two reasons.

Firstly because a compliance procedure would be very expensive, both in the annual budget and in human resources, not to mention the impact of the administrative inertia that this will generate on its activity.

Then because the platform considers that the methods of the SEC and the regulatory framework for securities are not compatible with cryptocurrencies.

A few days before the announcement, Paul Grewal, legal director of Coinbase, even split a  blog post  with a particularly vindictive tone:

"Coinbase does not offer securities on its platform. End of the story."

Bitcoin and Ethereum in the commodities category

The commodities vs. securities debate is not new and we find it at the heart of another case, that between the SEC and the Ripple (XRP) project.
Here again, the SEC considers that XRP would in fact be a disguised financial instrument, intended to raise funds for a company and has no utility value. An aspect that would distinguish it from Bitcoin (BTC) and Ethereum (ETH).

The SEC's pitch revolves around the fact that BTC and ETH would be issued to reward validators in their respective networks. At no time is the issue of tokens therefore controlled by a single player. On these projects, decentralization would therefore be real and indisputable.

Conversely, XRP would have been created on the initiative of Ripple's leaders and distributed to team members. It is therefore 100 billion XRP that would have been created ex nihilo, without a clear counterpart, and the majority of which would still be in the hands of Ripple's leaders. A process that is reminiscent of an issue of shares.

The famous Howey test

To cut the Gordian knot, the SEC indicates that it uses the famous Howey test, which dates from … 1946.

This test is based on four criteria to decide whether an asset falls into the basket of financial instruments:

• The contract is based on an investment of money,

• The buyer expects to generate a profit on his initial investment,

• The sums collected within the framework of the sale of the contracts are grouped together within a company,

• The expected profits come from the activities carried out by this company.

A very broad definition!

On paper, it is therefore a very large majority of the cryptocurrencies on the market that would be requalified as financial instruments, once they have been the subject of an ICO and a majority of the tokens are still in the hands of the teams.

Crypto Platforms Prefer CFTC Over SEC

In the United States, financial instruments are regulated by the SEC, while commodities are regulated by the Commodity Futures Trading Commission (CFTC).

Recently, the CFTC has publicly expressed interest in taking over oversight of US crypto markets beyond its current scope which includes the CME's Bitcoin and Ethereum futures.

A decision that obviously pleased several platforms, starting with FTX, whose CEO Sam Bankman-Fried was actively pushing for it to happen. Coinbase CEO Brian Armstrong's reaction also did not go unnoticed:

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