• The crypto industry is currently bearing the brunt of the classification of certain coins by the SEC as securities.
• This designation is capable of reducing the liquidity and availability of the indicted tokens.

The world of crypto is fast growing, generating considerable interest from both investors and regulators. According to reports, the US Securities and Exchange Commission (SEC) has classified several popular cryptocurrencies, including Solana (SOL), Binance Coin (BNB), Cardano (ADA), and Dash, as securities.

This decision marks a significant development in the regulatory landscape as it comes alongside the regulatory charges the SEC levied on popular crypto exchanges Binance and Coinbase for failing to meet regulatory requirements.

Specifically, the SEC’s lawsuits against Coinbase and Binance raised questions regarding the necessity of licenses for trading securities on crypto exchanges. If the SEC’s categorization of certain cryptocurrencies as securities is upheld, it would imply that these exchanges should have obtained licenses to offer trading services for securities. 

However, as it stands, neither Coinbase nor Binance possesses such licenses, which could potentially complicate the legal matters surrounding their operations. The digital assets believed to exhibit characteristics associated with securities, according to the SEC include SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, NEXO, ATOM, ALGO, and COTI.

While Proof-of-Work (PoW) coins, such as Bitcoin, have traditionally dominated the crypto space, the majority of the identified coins above rely on alternative mechanisms, with Proof-of-Stake (PoS) being the most common. Therefore, the SEC’s case against Coinbase and Binance targets not only the classification of certain crypto as securities but also the issue of staking-as-a-service provided by these exchanges.

The SEC’s concern with staking-as-a-service stems from the potential securities implications. By offering staking services, exchanges may be viewed as providing investment opportunities tied to the profitability and value of the staked tokens, which could fall under the idea of securities regulations. 

A Ripple Effect of the Classification

When a prominent regulatory body such as the SEC categorizes a cryptocurrency as a security, it can introduce potential limitations on its usage and trading. For instance, Solana has experienced a 9% decline since the SEC’s announcement, suggesting a price movement in the crypto market. Similarly, Binance Coin (BNB) has lost 13% of its value since the news.

In the face of regulatory uncertainty and the potential implications of classifying certain crypto as securities, Binance has chosen to delist trading pairs from its platform. Notably, coin delistings can be problematic for investors because they might affect the asset’s liquidity and availability. 

Furthermore, the decision by Robinhood officials to re-examine particular coins exemplifies how the platform has responded to the current regulatory developments in order to assure compliance and avoid potential dangers. 

However, only Bitcoin is recognized at the highest level. SEC Chairman Gary Gensler has called the Stellar coin a “commodity” on numerous occasions. As a result, the BTC sell-off has not been quite prominent. At the time of writing, Bitcoin is down only 1% in a 24-hour period.

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