The US Securities and Exchange Commission (SEC) has dumped the term "crypto-asset securities", acknowledging a significant misstep in its use of the phrase over many years. The admission, disclosed in an amended complaint against Binance on 12 September 2024, marks an important shift away from the regulator's oft repeated stance that crypto-assets are inherently securities.
The SEC clarified that the phrase “crypto asset securities” was not intended as an outright classification but was used as shorthand, a decision they now regret due to the confusion it caused. This acknowledgment is a rare instance of the SEC conceding to criticism that it had overreached in applying securities laws to the crypto space.
The SEC's memorandum filed in support of the amended complaint sets out the SEC's concession:
Despite the concession, the SEC has not backed down from its stance that the ten crypto-assets implicated in the Binance case were sold as securities when traded in secondary markets on the exchange.
The timing of the SEC's concession is particularly interesting, coming amid ongoing legal battles between the SEC and major players in the crypto world, including MetaMask and Coinbase. The notion that crypto-assets are inherently securities has come under increasing scrutiny by the Courts, including in the Ripple case where the New York court found that programmatic sales of the XRP token on exchanges were not securities transactions.
The SEC now appears to concede that its attempt to apply a blanket label to all crypto-assets as securities must give way in light of rigorous legal analysis. While the concession is significant, it remains to be seen whether it has a material impact on the SEC's litigation strategy going forward with the SEC continuing to pursue a wide array of actions against centralised and decentralised platforms on the basis that they operated as unregistered broker dealers by offering trading in crypto-assets.
By Steven Pettigrove and Luke Misthos
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