A US judge recently ruled in favor of the SEC (Securities and Exchange Commission), ruling that specific tokens or cryptocurrencies should be considered security exchanges even if they take place on the secondary market.
Last year, however, another judge ruled that trading in XRP (the cryptocurrency created by Ripple) on the secondary market did not violate federal securities law.
The Wahi case
The new ruling, issued by Judge Tana Lin of the District Court for the Western District of Washington State, was published a few days ago, and refers to the SEC’s case against Ishan Wahi, a former Coinbase product manager, and his brother Nikhil Wahi and their friend Sameer Ramani.
This is an insider trading lawsuit, because Wahi was accused of trading crypto tokens based on inside information obtained when he was an employee of Coinbase.
Wahi was later fired from the exchange, but the lawsuit continued.
In reality, it was Ramani who exchanged the tokens, on Wahi’s instructions. Ramani, however, then fled, so the SEC took it out on Wahi.
These were tokens that were purchased by Ramani shortly before the listing on Coinbase, when Wahi already knew that they would be listed. They are therefore not top cryptocurrencies.
Latest crypto news from the SEC: Tokens considered securities
The case involved the alleged crime of insider trading in relation to the purchase of Amp, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM.
As the former head of the SEC Office of Internet Enforcement, John Reed Stark, points out, this could also be a problem for Coinbase, because if those tokens are now to be considered unregistered securities then Coinbase has allowed their free trade in an illicit manner.
Coinbase still has an open lawsuit against the SEC for violating federal securities law.
According to Reed Stark, even the ruling that judged trades on the secondary market of .
In fact, Judge Lin in the Wahi case would have been inspired by this second ruling on Luna, and not the first on XRP.
Reed Stark is biased, but Judge Lin actually ruled in favor of the SEC.
The consequences for the crypto market of the SEC ruling on security tokens
The consequences of this ruling on the crypto market are likely to be considerable, because all tokens that will be considered unregistered securities will have to be delisted from all exchanges that provide trading services to Americans.
They could later be removed in many other parts of the world as well.
However, we will have to wait for the outcome of the lawsuit against Coinbase to understand whether they will actually have to be delisted or not.
What is certain is that Bitcoin is a commodity, and not a security.
There are already doubts about Ethereum, so much so that the SEC could decide to reject the request to issue ETFs on spot ETH in the USA in March. He also did this for BTC, then waiting for someone to report it (in this case it was Grayscale) so as to have a court rule on the matter.
For Ethereum the process could be the same, although in the case of ETH it is not so certain that the court will declare that it is a commodity.
On XRP the ruling is now final, but the SEC’s case against Ripple is still open, accused of having sold XRP on the primary market as a security.
As for smaller cryptocurrencies, in many cases Judge Lin’s reasoning could be applied, and therefore they may have to be delisted from the main centralized exchanges. On the DEXs, however, they will probably remain regardless.
SEC victory
So while the SEC lost on both XRP and especially spot Bitcoin ETFs, it won on Amp, RLY, DDX, XYO, RGT, LCX, POWR, DFX, and KROM.
Now we will have to wait to understand if it will also win against Coinbase, and if it wins, things could already start to change.
If it were to win against Ripple too, there could be a real upheaval in the crypto markets, with many tokens and cryptocurrencies that could have to be delisted from the main exchanges.
In reality, paradoxically this could also be a victory for Bitcoin, because it would free itself of many digital assets that compete for capital entering the crypto markets. Also because Bitcoin is now so inserted into the classic financial markets that it no longer seems possible to get it out.
On the other hand, there are tens of thousands of cryptocurrencies and tokens that were put on the market promising profits to those who bought them, while Bitcoin was issued without any promise of profit.
The vast majority of those tens of thousands of cryptocurrencies are just pure speculation, if not just projects to collect money from naive bettors.
However, the situation is still uncertain and complex, so it will still take some time before we understand where it will actually end.
Source: https://cryptonomist.ch/2024/03/07/sec-crypto-mercato-secondario-security-token/
