Whether cryptocurrency tokens are securities or commodities is at the heart of the U.S. Securities and Exchange Commission’s allegations against crypto exchanges Binance and Coinbase (COIN), Bernstein said in a research report Tuesday.
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The first judicial clarity on the matter will come from the SEC’s action against Ripple, the report said. A potential judgement on that case is expected later this year and will set the tone for the industry in the near term.
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The regulator said on Monday that it was suing Binance, Binance founder and CEO Changpeng “CZ” Zhao and the operating company for Binance.US on allegations of violating federal securities laws. A day later it sued rival exchange Coinbase on similar charges.
Crypto regulation has become a “completely political debate between Republicans and Democrats,” Bernstein said.
“The intent seems to build a functional framework for digital commodities and payments stablecoins – providing the Commodity Futures Trading Commission (CFTC) more regulatory authority than the SEC,” analysts Gautam Chhugani and Manas Agrawal wrote.
Given that the CFTC had already sued Binance alleging misconduct for attracting U.S. investors to its offshore derivatives platform, it was expected the SEC would follow, alleging securities violation and therefore implying that most tokens are securities.
The U.S. regulatory action is unfortunate, but not an “existential” risk, Bernstein said.
Most capital that had to leave the cryptocurrency market is already out, and the bad news appears to be fully priced in, with both bitcoin (BTC) and ether (ETH) trading up by around 3% after the event, the report said.
Read more: Bitcoin Saw Heavy Profit Taking in May: Goldman Sachs