The crypto rebound is alive and kicking.
Over the past week, the price of bitcoin has risen 4.2%, currently trading at $23,800, and the price of ethereum jumped 7.9% to just over $1,700. Most altcoins follow the major’s color. XRP
Meanwhile, the Securities and Exchange Commission (SEC) has shaken up the crypto community with another bombshell. On July 21, the SEC filed insider trading charges against a former product manager at Coinbase and his two relatives.
“Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and typically sold them shortly after the announcements for a profit. The lengthy insider trading scheme generated illegal profits totaling more than $1.1 million,” the SEC’s filing said press release.
An SEC investigation into America’s largest crypto exchange is deep in itself. (Coinbase stock crashed ~20% on the news.) But the sheer semantics of the investigation has a much bigger takeaway: for the first time, the SEC has officially declared a cryptocurrency a security.
If you’ve been reading my newsletter, this shouldn’t come as much of a shock to you.
As I reported, last month the Senate introduced the most sweeping crypto legislation to date aimed at overhauling how crypto is regulated. Among other things, the bill wants to classify digital assets into two buckets – commodities and securities – and place them under the regulatory purview of the SEC or the Commodity Futures Trading Commission (CFTC).
“The Act on responsible financial innovation seeks to classify digital assets into securities and commodities and regulate them accordingly. This will “give digital asset companies the ability to determine what their regulatory obligations will be and give regulators the clarity they need to enforce existing securities and commodity trading laws.” For example, bitcoin and ether, which fall into the ‘commodity’ bucket, will be regulated by the Commodity Futures Trading Commission (CFTC),” I wrote at the time.
The SEC’s charges against Coinbase are a first sign that regulators favor the view that non-autonomous cryptos — which raise money from the public with the promise of capital gains — are no different than stocks and must abide by the same laws.
So who’s who?
Judging by the legislators’ rhetoric, the strongest participants to endure as commodities are bitcoin and ether – the most widespread autonomous cryptos. In fact, in a recent interview, SEC Chairman Gary Gensler singled out bitcoin as the only cryptocurrency he and his “predecessors” believe deserve commodity status.
“Some people like bitcoin, and that’s the only one I would say … my predecessors and others have said, they’re a commodity,” he said.
It is important because being an “official” commodity status opens the floodgates of institutional capital. As Michael Saylor, CEO of MicroStrategy
The rest of the cryptocurrencies belong in the SEC chairman’s opinion in the securities bucket. In his recent address, Gensler argued that most cryptos fit the definition of “investment contract” under the Howey test, which technically puts them under the Securities Exchange Acts of 1933 and 1934.
Would a security label hurt crypto? At the end of the day, it’s probably more of a double-edged sword.
On the one hand, it will burden both exchanges and cryptos with strict compliance and bring many smaller players to their knees. On the other hand, crypto “standardization” could open the doors to millions of retail investors through traditional investment vehicles like ETFs.
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