Likewise, the “common enterprise” test is also easily met when trading cryptocurrencies. there is an expectation of profits solely from the effort of others.Īccording to the SEC, the first criterion is easily satisfied with crypto because fiat money or other digital assets are being exchanged.it is a shared enterprise, so the financial success of investors should be somehow connected.it is a financial investment, meaning that participants in the transaction must be risking their own money.The test sets out three key criteria for deciding whether a financial product should come under securities regulations: He argues such cases are preventing US innovation around the blockchain technology that powers crypto trading.Īt the heart of this case is the question of whether Ripple’s token satisfies the Howey test, which would deem it a security, just like a stock or a bond, for regulation purposes. Ripple disputes this and expects to spend US$200 million (£156 million) fighting the suit, according to its CEO. It argues that XRP, Ripple’s cryptocurrency token, is an unregistered security. These cases are similar to another brought against a crypto company called Ripple Labs by the SEC in December 2020. He called for legislation that “allows fair rules for the road to be developed transparently and applied equally, not litigation”. The SEC has also accused both Binance and Coinbase of operating unregistered exchanges, and offering the sale of unregistered securities in the form of crypto tokens.īinance has pledged to vigorously defend itself against the lawsuit, which it said reflected the SEC’s “misguided and conscious refusal” to provide guidance and clarity on regulation to the cryptocurrency industry.Ĭoinbase’s chief legal officer said in a statement to CNBC about the charges that “the SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance”.
On the other hand, he has also said he has no plans to ban cryptocurrencies, while the SEC approved the first Bitcoin ETF in 2021, as well as Coinbase’s stock exchange listing that same year.īut now the SEC has filed 13 charges against Binance and its founder Changpeng Zhao, as well as a motion to freeze assets belonging to Binance’s US affiliate (Binance is based in the Cayman Islands). Since Gary Gensler became chair of the SEC in April 2021, he has regularly testified before Senate committees on the need for more staff to regulate cryptocurrencies, calling the market a “ wild west”. And many crypto firms believe that by taking legal action instead of creating clear rules, the SEC has failed to provide the industry with enough guidance, leading to uncertainty for people and businesses. Binance and Coinbase have spoken out in support of regulation. But the latest charges are much more serious, including accusations that the exchanges are operating without the correct registration.īoth cases boil down to whether or not cryptocurrency tokens should be classed as “securities”, like stocks, and regulated in the same way. This isn’t the first time Binance and Coinbase have caught the SEC’s attention – it’s not even the first time this year.
The US Securities and Exchange Commission (SEC) sued the cryptocurrency platform Coinbase shortly after launching a lawsuit against the world’s largest cryptocurrency exchange, Binance.
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