eToro’s $1.5M Wake-Up Call: How the SEC’s Latest Crypto Ban Has the Entire Market Confused
The SEC resumes scrutiny of the crypto market.
eToro‘s crypto purge includes unexpected assets.
In the wake of the FTX and Celsius scandals, the SEC has stepped up its enforcement campaign against crypto firms to ensure compliance with securities regulations. While critics argue that these actions are excessive, the SEC maintains its commitment to safeguarding investors.
The SEC’s latest assault on the crypto industry has seen eToro fined and forced to drastically cut its offerings under a sweeping crypto ban, leaving participants bewildered by the agency’s inconsistent approach to regulation.
Facing allegations of providing unregistered brokerage and clearing services for crypto securities, eToro has agreed to settle with the SEC by paying a $1.5 million fine. As part of the settlement, the trading platform also agreed to remove most of its crypto assets offerings. Sponsored
The SEC claimed that eToro had offered US customers unregistered securities trading since 2020. Due to the settlement, eToro’s US customers are now restricted to trading only Bitcoin, Bitcoin Cash, and Ether, with a 180-day window to liquidate balances held in all other tokens.
In response, eToro highlighted that its UK and European markets operate under clear regulatory frameworks and expressed optimism that the US will eventually follow suit. The company noted that the settlement terms do not prevent it from reintroducing assets currently deemed non-compliant by the SEC once clearer regulations are in place.
The SEC relies on the Howey Test to determine whether a crypto asset qualifies as a security, focusing on factors like a shared enterprise and an expectation of profit. However, critics argue that the test, which made case law in 1946, is outdated and too subjective for the complexities of modern crypto assets. eToro’s crypto ban settlement has served to further spotlight this issue.
What Is a Crypto Security?
eToro’s settlement terms with the SEC have left the industry baffled. The platform offers 105 crypto tokens, ranging from major assets like XRP and Litecoin to lesser-known tokens like Biconomy and Origin Protocol.
By forcing eToro to delist all tokens except Bitcoin, Bitcoin Cash, and Ether, the SEC has effectively labeled the remaining 102 assets as securities. This decision, in some cases, highlights an inconsistent approach to regulation.
For example, it’s unclear why Litecoin has been classified as a security in the eToro case, given that it shares Bitcoin’s underlying blockchain and verification method. SEC Chair Gary Gensler stated at a Bloomberg event in 2018, before his appointment, that Litecoin was not a security.
This ongoing uncertainty has pushed some companies, like Koinly, to adopt an overly cautious stance, declaring Bitcoin the only digital asset, not a security under current rules.
On the Flipside
Donald Trump recently vowed to fire Gensler if elected.
Regulatory hostility drives crypto innovation to friendlier jurisdictions.
Why This Matters
Despite Democrats’ assurances of working with the crypto industry, enforcement actions based on unclear rules seem to be increasing.