This month, the US Security and Exchange Commission (SEC) changed some regulations and took strong action towards Binance’s US entity. As expected, the news concerned crypto investors and sent prices tumbling in global markets.
What does the future look like for the SEC on Bitcoin and crypto? Furthermore, what are the short and long-term implications for crypto holders? The market will always recover but expect some volatility along the way.
Why did the SEC sue Binance?
The SEC has raised several concerns against Binance and its CEO. The SEC has lodged accusations against Binance. They claimed that the company allegedly transferred customer funds to entities controlled by its CEO. There are a total of 13 civil charges by the SEC.
They claimed that the CEO controlled the Binance US platform. Yet, the CEO showed denial of his involvement with this issue. The SEC charges Binance and BAM Trading Services, a business affiliated with it, with dealing in unregistered securities.
However, Binance refuted these accusations. They are aware of how serious the SEC's accusations are. But, they believe that they should not be the target of an enforcement action. In particular on an expedited basis.
Is crypto considered security?
The classification of cryptocurrency is one of the topics of debate among regulators. They are trying to determine whether cryptocurrency fits into one of these categories:
This classification is important because it affects how regulators oversee and control crypto. If the regulator considers crypto as a commodity, the Commodity Futures Trading Commission (CFTC) will regulate it. This commission is responsible for overseeing things like oil and gas trading. The CFTC will then regulate crypto trading along with currency trading.
But, if the regulator considers it as a security, the Securities and Exchange Commission (SEC) will be responsible. The SEC has the main task to supervise
- and exchange-traded funds.
The SEC's chair, Gary Gensler, believes most cryptocurrencies are securities. He can consider crypto as security by a test called the Howey Test, which comes from a court case in 1946. The Howey Test helps determine the classification of transactions as a security. It involves four key criteria that need to be met.
The four elements of the Howey Test
Element 1: Investors Invest Money
This shows that someone puts their money into the transaction and is willing to risk it. The risk can comprise both financial or any kind of investment.
Element 2: Profit Expectation
Investors expect that their investments will generate a financial return or gain.
Element 3: Common Enterprise
The investment is part of a shared enterprise or project that involves many participants. These participants can consist of individuals, groups, or organisations.
Element 4: Profits from others' efforts
Investors generate profits or gains from investments. This requires extra efforts of others involved in the enterprise.
If the transaction meets these four conditions, it is likely the regulators consider it as a security. Changing in status means crypto developers must comply with different regulations. Gensler emphasizes companies should follow and comply with the regulation. If these companies do not follow the regulation, the SEC will investigate and take action.
SEC on Bitcoin
The SEC is believed to have treated Bitcoin differently from other cryptocurrencies. This statement comes from Gensler and Carol Goforth, law professors at the University of Arkansas. This differentiation partly stems from how the SEC classified Bitcoin as a commodity. According to them, Bitcoin is not considered as a security. This is because it's anonymous and has open-source origins. It means that developers or managers do not affect investors' profits or gain directly.
Furthermore, certain cryptocurrencies can derive advantages from engaging in developmental activities. The project's activities attempt fundraising via securities that follow SEC laws. After that, they will present cryptocurrency once their blockchain works well enough. Developers often seek to remove elements related to the common enterprise criteria in such instances.
Doing so makes it more likely to be rejected as a security by the SEC. This could otherwise result in classification under security by SEC regulations. Though, a precise guideline for doing this remains unknown. So, crypto creators or developers should exercise caution. Crypto developers also must follow and understand the regulation before creating new projects.
SEC Crypto regulation: What this means for the rest of the world?
The SEC crackdown on crypto could make it harder for you to trade your favourite digital currencies. It also poses a risk to the decentralized nature of crypto that attracted many investors. But, many experts believe that clear regulations are necessary to ensure investor safety and security. This is especially due to several exchanges, lenders, and funds going bankrupt recently. These bankruptcies make the crypto industry seem very fragile and vulnerable to the risk of losing money.
Some experts believe stricter regulations would protect investors from losses. This works best when the exchanges collapse. But, it may limit how you can use crypto and stifle innovation in the industry. Experts also argue that investors do not need to worry about the SEC's latest crackdown.
Regulators have considered Bitcoin as a commodity. When you have self-custody of your Bitcoin, you do not need to trust an exchange or any intermediary for transactions. This is due to Bitcoin's unique feature of lack of counterparty risk.
But, there is a piece of good news for crypto investors like you. You don’t need to worry about the effect of the SEC crackdown. After the news releases, the prices of some crypto in the market have risen. Bitcoin prices have risen by more than 70% this year. Meanwhile, Ethereum and other popular cryptocurrencies have also gained more than 50% so far.
Understanding and monitoring regulatory changes will help you navigate the evolving industry landscape. You must keep informed and adapt your strategies. It is imperative to mitigate risks and make well-informed investment decisions. This is crucial within this dynamic regulatory landscape and all of this is easier, with the help of AI.
Conclusion: Let WALBI Lighthouse monitor regulation news for you
As you can see, regulation news in cryptocurrency needs constant monitoring. Even just a rumour of a new proposal could send prices skyrocketing or plummeting. Trading the news manually is time-consuming and risky. That’s why WALBI uses AI to assist in data monitoring.
WALBI Lighthouse scans news articles - including those on regulation - so you don’t have to. AI gives you real-time data on the global daily news to help you make the best decisions on your cryptocurrency trades.
In this new digital economy, laws and opinions change frequently. For example, the SEC’s once positive outlook on cryptocurrency is now taking a turn for the worse. What happens next is anyone’s guess. However, we can make educated assumptions through data analysis - which is made infinitely easier via WALBI’s advanced AI trading insights.