SEC’s Crypto Classification Conundrum

The SEC struggled to define whether crypto tokens were securities or not, leading to confusion about their regulatory status.

Recently, renowned pro-crypto attorney James Murphy (also known as MetaLawMan) commented on the inconsistent classification of crypto assets as securities by the U.S. regulator.

Murphy specifically emphasized recent court proceedings in which the legal representatives of the SEC put forth contradictory arguments.

A January 17 hearing in the litigation against the U.S.-based exchange Coinbase was the initial instance cited. The court requested clarification from the commission during the proceedings as to whether the thirteen tokens in dispute were securities at the time of their initial issuance.

The commission attorneys responded, “Your Honor, yes,” confirming that the tokens were securities. The commission attorney added, however, during the same court proceeding, “The token itself is not the safety.”

In addition, attorney Murphy referenced another instance during the hearing about the lawsuit filed against the preeminent trading platform Binance.

Murphy’s Critique of SEC’s Classification

Similarly, the court inquired whether the commission counsel concurred that the contracts are distinct from the coins that are the subject of the investment contracts.

The commission attorneys responded positively, recognizing that the crypto assets are essentially a line of code. Nonetheless, at the same hearing, they repeatedly contradicted themselves by stating, “The token itself represents the investment contract.”

In response, the court doubted it had received word from the commission before tokens were designated as the investment contract.

To support its stance, the commission attorney maintained that the investment contract is embodied in the asset. Moreover, they think that their positions thus far do not contain any contradictions.

Attorney Murphy emphasized that the commission classifies the crypto token as neither safety nor non-safety and that these two classifications are not in conflict. He remarked, “The commission appears to have difficulty maintaining its narrative straight regarding cryptocurrencies.”