SEC’s crackdown is a positive opportunity for crypto
The cryptoverse has been roiled since US financial regulator – the Securities and Exchange Commission (SEC) – last week filed lawsuits against Binance and Coinbase, the world’s largest crypto exchange and the largest publicly-traded crypto company, respectively.
Among the charges, in both cases, it was claimed by the regulator that some crypto tokens traded on these exchanges fall under the classification of ‘securities.’ In effect, the SEC alleges that they were acting as unregistered brokers of securities.
At the same time, its Chair – Gary Gensler – has made clear that he believes other cryptocurrencies, namely Bitcoin, are different as they are ‘commodities.’
“Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities,” the SEC said in a press release. “Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.”
Coinbase’s failure to register “has deprived investors of significant protections,” the SEC said.
Gensler’s decisive action – which may well end up in the US Supreme Court – has infuriated crypto investors and some Congressional leaders.
Across social media all weekend, many in the crypto community have been extremely vocal about their annoyance, anger and outrage towards the Chair and the agency he heads-up.
However, I’m taking a different stance.
While I agree with almost everyone that last week’s bombshells were a ‘game-changer’, I am also of the opinion this game-changing development is a massive opportunity for the industry and investors.
For the first time, we know now how crypto tokens should be classified – either securities or commodities.
Both are legitimate, valuable financial assets, but they are inherently different, in the same way stocks (securities) are different to gold (commodity).
But by including a mix of securities and commodities, you can spread your investment risk across different asset classes. Different markets tend to perform differently under various economic conditions. Diversification can help reduce the impact of any single investment’s poor performance on the overall portfolio.
Also, securities and commodities often have different risk profiles. Combining them can help manage risk by offsetting losses in one asset class with gains in another.
The sharper, better definitions we now have from the SEC – which has an enormous global influence – allows for clarity, which will help shore up the industry for the long-term, in turn benefitting investors.
Growth potential is enormous for clean exchanges that seize this new era of clarity.
We’re now in a new world and the cryptoverse needs to get over seeing the ‘red mist’ with the SEC. It is about evolving, doing better with descriptions of financial assets, and harnessing the incredible opportunity that the developments have provided.
Fighting for the past is pointless, especially when a brighter future is waiting for those who want it.
In a short time from now, I’m confident that the clear distinction between which cryptos are securities and which are commodities will be universally regarded as a positive.