Crypto
Explainer: What makes a crypto asset a security in the US?
What did the Ripple judge say?
US District Judge Analisa Torres in New York found some digital token sales by Ripple did not violate the law as alleged by US Securities and Exchange Commission. The SEC sued Ripple for conducting an unregistered offering of $1.3 billion in XRP between 2013 and 2020. Torres ruled that Ripple’s sales on public exchanges to retail investors were not offers of securities under the law because purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts.
Those sales were “blind bid/ask transactions,” she said, in which buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.”
It was the biggest win for a cryptocurrency company in a case brought by the SEC. The regulator got a partial victory because Torres also ruled that Ripple violated securities laws when it sold XRP directly to sophisticated investors such as hedge funds.
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What has the SEC been alleging?
The regulator has brought more than 100 enforcement actions against crypto companies, claiming digital assets are securities. The biggest case was brought this year. The SEC said Coinbase, the largest US cryptocurrency platform, allowed users to trade at least 13 crypto assets that should have been registered as securities, including tokens such as Solana, Cardano and Polygon. Coinbase denied the allegation.
Industry players have insisted that most cryptocurrencies – which operate on a database shared across a network of computers, known as a blockchain – do not fit the US legal definition of securities. They say the SEC has been vague and inconsistent and have called for new regulations or laws.
What is a ‘security’ under US law?
To SEC’s contends crypto assets are securities, citing a US Supreme Court case from 1946 dealing with investors in Florida orange groves owned by the W. J. Howey Co.
The court ruled that “an investment of money in a common enterprise with profits to come solely from the efforts of others,” is a kind of security called an investment contract.
The SEC had jurisdiction to seek to prevent Howey from selling to out-of-state investors fractional land interests with a contract to provide profit from the harvest, the court said.
Securities, unlike assets such as commodities, are strictly regulated and require detailed disclosures to inform investors of potential risks.
What have other judges said?
Many of the SEC’s crypto-related cases have ended in settlements, with companies paying fines and agreeing to follow US law or exiting the US market.
Before the Ripple decision, judges in the few cases decided in court agreed with the SEC that specific crypto assets were securities.
Those rulings said developers’ statements tying the value of their digital assets to efforts to grow or maintain the associated blockchain systems showed investor profits depended on the “efforts of others.”
Courts have also decided that investors in those assets participated in a “common enterprise” because the funds they spent were pooled by the token issuer and used to develop relevant systems.
What about Bitcoin?
Bitcoin is not considered a security because its anonymous and open-source origins mean investor profits are not dependent on the efforts of developers or managers, said Carol Goforth, a law professor at the University of Arkansas.
Some blockchain projects have tried to fund their operations in two stages, by offering securities under SEC regulations and later giving or selling those investors cryptocurrency after building a functional blockchain.
Goforth said the developers hoped that approach would remove the “common enterprise” element, but she added the SEC has never clarified what it would take to convert a security to a non-security.
A new U.S. Securities and Exchange Commission Chair will be appointed in 2025.
SEC Chairman Gary Gensler (Photo by Alex Wong/Getty Images)
Gensler Resigns as SEC Chair
Gary Gensler’s resignation as SEC Chair in January 2025 signals a major shift in cryptocurrency regulation. His aggressive enforcement drew criticism, and with bitcoin nearing $100,000, speculation grows that the next Chair under President-elect Trump will adopt a more industry-friendly approach.
Current SEC Chair Gary Gensler announced his resignation via press release on November 21, 2024. His departure is effective January 20, 2025, which coincides with President-elect Donald Trump’s inauguration.
SEC Press Release
The SEC press release states, “Gensler implemented reforms to enhance efficiency, resiliency, and integrity in U.S. capital markets; agency held wrongdoers accountable and returned billions to harmed investors.”
During his tenure, Gensler led significant regulatory initiatives, particularly in the cryptocurrency sector, resulting in over 2,700 enforcement actions and $21 billion in penalties. His departure is anticipated to usher in a more industry-friendly regulatory environment under the incoming administration.
Optimism Builds In Digital Assets
Digital asset industry leaders have praised Gensler’s decision to move on from the SEC.
It is widely accepted that the cryptocurrency industry is glad to see Gary Gensler resign due to his aggressive regulatory stance, which digital asset leaders viewed as stifling innovation and overly punitive.
Potential SEC Pick Likely To Be Pro-Crypto
All eyes are now on the various candidates who would replace Gensler as SEC Chair. Based upon Trump’s connection with the crypto community, many believe he will appoint a pro-crypto Chair.
Brian Armstrong, CEO of Coinbase, one of the largest crypto exchanges, posted on X his preferred pick is for Trump to appoint current SEC Commissioner Hester Peirce. Regarding Peirce as SEC Chair, Armstrong said,
“She would be the best choice. Smart, fair, professional. Can work with both sides.”
Another potential candidate is Mark Uyeda, also a current SEC Commissioner. Known for his pro-crypto stance, Uyeda has openly advocated for a defined and balanced approach to digital asset regulation and governance.
Dan Gallagher, who formerly served as a commissioner at the SEC, was also floated as a potential pick for Chair. However, Gallagher, who is now the Chief Legal Officer at Robinhood, stated he is not interested in returning to the SEC. Gallagher said:
“It is always an honor to have your name in the mix for an incredibly important job like SEC Chairman. However, I have made it clear that I do not wish to be considered for this position.”
All Eyes On 2025
The SEC’s transition of leadership in 2025 marks a pivotal moment for the future of U.S. financial regulation, particularly in the cryptocurrency sector.
As speculation grows over who will succeed Gary Gensler, the industry braces for potential shifts in policy that could significantly impact innovation and compliance standards.
Meanwhile, bitcoin’s price continues its remarkable rally toward $100,000 per coin, reflecting renewed optimism in the crypto market and heightened anticipation for a more industry-friendly regulatory environment under the incoming administration.
Crypto
SEC Reports Record $8.2B in Remedies With 583 Enforcement Actions in 2024 – Regulation Bitcoin News
The SEC’s record-breaking enforcement year revealed unprecedented financial penalties and bold action against high-risk sectors, including crypto and private funds, marking a pivotal moment for market regulation. SEC Achieves Historic $8.2B in Remedies From 583 Enforcement Actions in 2024 The U.S. Securities and Exchange Commission (SEC) announced on Friday a record-breaking year for enforcement in […]
UBS Says Gold Is Better Hedge Than Bitcoin
UBS Global Wealth Management chief investment officer Themis Themistocleous discusses the bitcoin rally and what it could mean from a portfolio investment perspective. Bitcoin is “very volatile” and other hedges “like gold” could prove to be “much more effective” and have “lower volatility,” Themistocleous tells Bloomberg Television. “It’s not an asset that we can recommend to our private clients.”
Bloomberg
If it seems everyone is talking about bitcoin these days, you’re onto something.
The digital currency has been hitting record highs and neared $100,000 this past week, having doubled in value throughout 2024. Launched in 2009, bitcoin is the first cryptocurrency, meaning that it’s a digital currency and does not rely on banks to verify transactions.
Bitcoin’s surge – up about 130% this year – is one of the “Trump trades,” market moves that have kicked in since former President Donald Trump’s victory in the Nov. 5 election.
Trump has dabbled in cryptocurrency – releasing crypto-based digital trading cards – and Trump Media and Technology Group, which operates Truth Social, is reportedly close to acquiring crypto trading firm Bakkt. The Trump family launched its own crypto firm, World Liberty Financial, in September.
Investors have wagered Trump’s support for bitcoin and other digital assets will lead to fewer restrictions on the industry. During the presidential campaign, Trump said he would make America the “world capital for crypto and bitcoin.”
Trump has tapped Tesla CEO and SpaceX founder Elon Musk to co-lead, with Vivek Ramaswamy, the new Department of Government Efficiency, or D.O.G.E. It’s an acronym for cryptocurrency called Dogecoin, which Musk supported as it became a phenomenon in 2021.
Been hit with the bitcoin buzz, but don’t quite understand it? Here’s some bitcoin basics.
What is bitcoin?
Bitcoin is a digital asset, launched in 2009 by a person or group known as Satoshi Nakamoto and designed to have a cap of 21 million bitcoin tokens. Bitcoin is created as crypto miners use their computing work to validate bitcoin transactions on its decentralized blockchain network, essentially a digital ledger meant to prevent fraud. As the crypto miners work, they earn bitcoin.
So far, about 19 million tokens have been released. In April, bitcoin underwent a “halving,” which kicks in about every four years to reduce the rate at which new bitcoins are created and released into circulation. As the bitcoin cap of 21 million tokens nears, demand likely increases, according to Investopedia.
Currently, a bitcoin is worth about $98,000. But the ownership of fractional shares of bitcoin is common, notes NerdWallet.
What are bitcoin ETFs?
It’s Trump’s interest in bitcoin alone that’s led to bitcoin’s climb. Earlier this year, the U.S. Securities and Exchange Commission voted to allow the sale of bitcoin-based exchange-traded funds, or ETFs, to the public.
That action allowed more investors to get into bitcoin in a similar manner to how they invest in stocks, bypassing crypto exchanges.
How does bitcoin work?
Like the dollar, bitcoin can be used as currency, but it’s virtual and isn’t controlled by banks or governments. While an entire bitcoin is priced at nearly $100,000, you can own partial shares of each coin. The smallest share of each bitcoin is called a Satoshi – after the cryptocurrency’s creator – equal to a hundred millionth of one bitcoin, according to NerdWallet.
You can buy bitcoin on a crypto exchange such as Binance.US, online stockbrokers including Fidelity and E-Trade, and trading apps like Robinhood.
If you buy bitcoin on a crypto exchange, you will create a “crypto wallet” to hold your bitcoin. If you invest in those bitcoin ETFs the SEC approved earlier this year, online brokers will hold your bitcoin in your brokerage account as any other investment.
What can I buy with bitcoin?
Pretty much anything. For instance, you can get a bitcoin debit card, which you load with a certain amount of your cryptocurrency holdings. That can be used as you would any debit card.
Beyond that, many companies now accept cryptocurrency for purchases including AT&T, Microsoft, Rolex, Time Inc., and Tesla, notes Investopedia.
You can buy “art,” too. That banana duct-taped to a wall, which sold last week for $6.2 million? The buyer paid in crypto.
What concerns are there about bitcoin and cryptocurrencies?
Back in 2018, investment guru Warren Buffett predicted that cryptocurrencies such as bitcoin, will likely “come to a bad ending.” His stance hasn’t really changed, reported Nasdaq.com.
But many point to the surge in bitcoin’s valuation as a sign the cryptocurrency has arrived. Anthony Scaramucci, founder of Skybridge and a former White House director of communications, has said Bitcoin could exceed $170,000 by mid-2025, and Ark Invest CEO Cathie Wood has predicted Bitcoin will hit $1.48 million by 2030, Fortune reported.
However, crypto exchanges can fail. The 2022 bankruptcy of the FTX cryptocurrency exchange resulted in customers losing $8 billion; founder Sam Bankman-Fried was sentenced to 25 years in prison in March.
Bitcoin values dipped after that, but have since risen to new heights – because, supporters say, as more people invest in bitcoin and other cryptocurrencies, the currencies become more stable.
Volatility can be seen as an advantage for those in search of future earnings – or as a disadvantage for those seeking somewhat stable investments.
“Remember that bitcoin and crypto are highly volatile, and may be more susceptible to market manipulation than securities,” notes Fidelity Investments in a primer for investors. “Crypto holders do not benefit from the same regulatory protections applicable to registered securities, and the future regulatory environment for crypto is currently uncertain.”
Maybe think about investing in bitcoin as you would joining the wave of online bettors. “If you decide to buy Bitcoin, it’s a good rule of thumb to invest only what you can afford to lose,” writes NerdWallet’s Kevin Voigt, “and take measures to protect your assets.”
Contributing: Daniel de Visé, Jessica Guynn, Max Hauptman, Jonathan Limehouse and Bailey Schulz of USA TODAY, and Reuters.
Follow Mike Snider on X and Threads: @mikesnider & mikegsnider.
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