CRYPTOCURRENCY | ALCOINS | SEC
The U.S. Securities and Exchange Commission (SEC) listed some 70 altcoins as securities. What action should we take immediately
To answer this, we need to dive into the world of crypto regulation and unravel some complex legalities. Let’s start by understanding why it matters.
I own a few of the altcoins that the SEC has designated as securities, such as XRP, MANA, SAND, ALGO, BTT, DASH, and others, as I’m sure many HODLers do. I don’t expect any sales at this time.
IMO, these altcoins could recover much of their lost value over time, and especially during the next bull run. If selling results in a loss, you may want to wait.
The SEC announcement and decision by a number of exchanges to delist these altcoins has sparked fear, uncertainty, and doubt (FUD) in the crypto universe. But is it justified?
Why it matters and what you can do about it
When an altcoin is classified as a security by the SEC, it means that the altcoin must meet specific regulations and requirements, which can affect liquidity and market accessibility.
As a crypto investor, it is important for me to keep up with such developments in order to remain compliant and understand how they could affect the potential of my investment.
If you look at what happened after the SEC opened its lawsuit against Ripple Labs’ XRP altcoin, several exchanges have delisted XRP. That means you cannot buy or sell it on that exchange.
You could still take it off the exchange to sell elsewhere. IMO it is not wise to leave your crypto on an exchange anyway. The chance of a hack or bankruptcy of the exchange is too great.
Look at FTX. Many American investors thought it was too big to fail. oops.
However, if you recall November 2021, e-Toro announced it would remove Cardano (ADA) and Tron (TRX) from the list by 2022 due to “regulatory issues”.
I immediately sold my ADA and TRX holdings. It was the first such “fear” for me. Several FUD incidents have occurred since then, including the SEC lawsuit against Ripple’s XRP. I still have XRP in my cold wallet. Maybe I’ve gotten used to the SEC’s FUD and “scare tactics” and don’t panic as easily.
Knowledge is key. Knowing and accepting the risks will help you make a more informed decision.
What is the Howey Test?
To determine whether an asset qualifies as a security, the SEC often relies on the Howey test, derived from a 1946 U.S. Supreme Court case SEC v. W. J. Howey Co.
It involves judging whether money has been invested in a joint venture, with the expectation that the profits will mainly come from the efforts of others.
“According to the Howey test, a transaction qualifies as a security if the following four elements are present:
1. An investment of money
2. In a joint venture
3. A reasonable profit expectation
4. Derived from the efforts of others
To be considered a security, a transaction must meet all four points of the Howey test. — Embroiderer.
Given their Initial Coin Offering (ICO) structures and their reliance on specific teams for success, many altcoins can fall under this definition.
However, in 2021, one of the altcoins determined by the SEC to be securities was authorized by the SEC to hold an ICO. Now the SEC says they have been selling securities illegally since 2019. WTF?
Are These Cryptos Securities!? SEC vs Binance Breakdown!!
In this video, Guy discusses what the SEC sees “a reasonable profit expectation” And “the efforts of others”, regarding many of the more popular altcoins mentioned by the SEC.
What happens if an Altcoin is a security
Many investors wonder why the executives of these altcoins don’t just register their coins with the SEC and be done with it.
Unless there is an exemption, an altcoin classified as a security must be registered with the SEC. This is a difficult, time consuming, complicated and costly process. These requirements also apply to the dealers, brokers and exchanges that trade the altcoins.
It brings with it a host of requirements, including regular periodic disclosures and updates about the company and compliance with broker/dealer rules.
Any misstep or non-compliance with SEC regulations may result in sanctions, fines and penalties.
On the one hand, this may limit the coin’s trading opportunities, but on the other hand, it may provide some protection for investors like us.
In addition, registration with the SEC often lends an aura of legitimacy to the altcoin. With the number of scam coins and withdrawals in the cryptocurrency market, this is a good thing for investors.
Plus, if the altcoin’s custodians fail to meet all the requirements, after being deemed a security or registered as a security, they open themselves up to investor class action lawsuits.
However, the SEC could have issued much clearer guidance to prevent the goat screw surrounding these altcoins from harming investors more than the exchanges, brokers, and dealers.
Which crypto are not securities
According to the SEC, Bitcoin and Ethereum are not considered securities largely because of their decentralized nature.
Unlike most altcoins, they do not depend on a single entity or group for their success, meaning they fail “efforts of others” part of the Howey test. Therefore, they are subject to different regulations than many altcoins.
Are SEC-identified altcoins still good investments?
Despite the regulatory complications, I believe that altcoins identified as securities can still be good investments.
However, I would be hesitant to buy one of these because there are better choices with fewer problems, even with the reduced price caused by the FUD created by the SEC.
While they come with different rules and potential risks, they also have unique potential benefits. Their SEC registration can increase investor confidence, and the mandatory transparency can provide clearer insight into the project’s progress and finances.
Moreover, like Ripple and XRP, it will probably take years to iron this all out, especially if there are more lawsuits.
If you’re like me and own altcoins that the SEC has classified as securities, understanding what it entails and how it can affect your investment strategy is critical.
However, if you decide to sell now, you risk these altcoins recovering during the next bull run and at least getting your money back.
You may be able to write off some of the losses on your taxes, but check with a tax professional because the rules are constantly changing.
“A White House official confirmed this the budget will include a tax provision designed to reduce wax sales trading by crypto investors. At this point, investors can sell all cryptocurrencies at a loss, claim the loss on their taxes, and then buy the same number and type of cryptocurrencies again. – Coins Desk, March 9, 23.
Always stay informed, comply with regulations and adjust your strategy where necessary. Have fun investing!
As I mentioned above, you move your cryptocurrency to a more secure environment that you manage with a cold wallet.
No exchange is immune to hacks or insolvency.
“Chainalysis identified $3.8 billion in cryptocurrency hacks last year, which is 15% more in 2021 ($3.3 billion) and dramatically more than the $0.5 billion stolen in 2020.”
For more information, read my article:
I like the Ledger Nano X Crypto Wallet.
Ledger Nano X: Unpacking and Setup Beginner’s Guide 🧐
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DISCLAIMER: This article is for entertainment and informational purposes only. It should not be considered financial or legal advice. Not all information will be accurate. I am not a financial advisor and you should take everything I write as informative and friendly chatter to show you what is possible when you invest your money in these vehicles.
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Stephen Dalton is a retired United States Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. Also a top writer in food, investing, travel, fiction, transportation, VR, NFL, design, creativity and short story.
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