After the SEC's offensive, what should you do with your cryptos?
The legal onslaught by the US Securities and Exchange Commission (SEC) has sent cryptocurrencies tumbling, particularly those at risk of being reclassified as "financial securities".
You need to have your heart set on the crypto markets right now. Since the US stock market watchdog (SEC) decided ten days ago to attack several giants in the sector, most cryptocurrencies have fallen sharply. Some, like MATIC (Polygon), ADA (Cardano), SOL (Solana) have even plunged by more than 20% 😬.
Only a few assets like ether, and especially le bitcoin, have held up well.
How can such a difference be explained? And above all, what should you do with your cryptos?
The Big Whale looked into the matter 👀.
On 5 June, the SEC challenged Binance, before doing the same the next day with Coinbase.
As we explained in our dossier (available here), the cases are different, but they have one thing in common: in both cases, SEC boss Gary Gensler is accusing the exchange platforms of being outlawed because some of the cryptocurrencies they market are in fact "securities", i.e. "financial securities", and traditional financial regulation must be applied to them.
To continue operating, Binance and the other platforms therefore have the choice of:
👉 registering as a traditional stock exchange (the NYSE on Wall Street), which is expensive and represents numerous regulatory constraints 😅.
👉 stop marketing cryptocurrencies in the SEC's sights
In just a few days, several industry players such as Binance US (the US arm of Binance), Robinhood and eToro US have announced that they will stop selling a whole range of cryptos very soon, which has had an impact on their prices since it means that their availability on the market will be (greatly) reduced.
Why aren't all cryptos targeted?
In the Binance and Coinbase cases, the SEC considers that 19 cryptocurrencies would actually be financial securities. These include Binance Coin (BNB), Polygon (MATIC), Cardano (ADA), Solana (SOL), The Sandbox (SAND), Cosmos (ATOM) and Near (NEAR), to name but a few.
A total of 67 cryptocurrencies are being targeted by the SEC, based on all the ongoing cases, including other major players like Ripple (XRP) or Tron (TRX).
For the SEC, these cryptocurrencies are in name only and are said to be similar to shares in companies.
The MATIC, for example, is considered to be a share in the start-up Polygon Labs, which has a "centralised" legal structure with identifiable and identified directors.
Why is ether not affected?
Ether (ETH) is the cryptocurrency of the Ethereum protocol. In 2018, one of the SEC's former officials had considered that it was not a financial security.
Since then, the SEC's doctrine has not moved on the subject and the stock market watchdog has continued to consider that the second-largest cryptocurrency on the market is not a financial security, in particular because its operation based on "proof of work" (all explained here) made it a sufficiently decentralised organisation.
But things could change. Why? Because Ethereum has, in the meantime, changed its consensus algorithm and the protocol now works with "proof of stake".
While this system is less energy-intensive, it does raise questions about the actual decentralisation of the project (which is much more centralised) and therefore the nature of ether, which could also be considered a financial security 😅.
And bitcoin in all this?
Ten days after the SEC's offensive, bitcoin has emerged as the only cryptocurrency that appears to be safe, as no company plays a crucial role in its operation and its network is deemed sufficiently decentralised.
Gary Gensler and his teams have already explained, and confirmed in recent days, that the first cryptocurrency was not a "financial security", but a "commodity", i.e. a kind of interchangeable commodity 🧐.
What should you do with your cryptos?
Should you sell your cryptos that risk being qualified as financial securities? Keep only bitcoin?
These are the questions that many are asking, but no one can provide a perfect answer. What is certain is that the progress of the SEC's lawsuits against Binance, Coinbase, and perhaps other platforms, will have an impact on prices.
If the courts before them consider that cryptos, or at least some of them, are not financial securities, then their value is likely to rise sharply 🚀.
Inversely, if US judges consider that they are securities then their value could fall sharply again. Only for bitcoin does the path seem completely clear.