The Securities and Exchange Commission (SEC) filed lawsuits against major cryptocurrency exchanges Coinbase and Binance on Monday and Tuesday, claiming that many cryptocurrencies traded on these platforms should be registered as securities. However, there is a significant exception to this classification: bitcoin. The SEC has made it clear that Bitcoin is not considered a security, which has boosted investor confidence in the leading cryptocurrency.
Bitcoin’s Performance and Investor Sentiment
Despite the industry turbulence caused by the SEC lawsuits, bitcoin has shown resilience, leading investors to stick with it as a safe bet within the crypto market. At the time of reporting, bitcoin experienced a 5% increase, reaching $26,759, before settling at $26,400. Its market share, indicating its dominance in the overall crypto market, rose by 0.85% during the same period.
Optimism Among Bitcoin Supporters
Proponents of bitcoin expressed optimism on social media, suggesting that the ongoing legal battles could work in favor of their favorite digital asset. Industry figures such as Cory Klippsten, CEO of bitcoin financial services firm Swan Bitcoin, and Pierre Rochard of bitcoin miner Riot Platforms, shared positive sentiments about bitcoin’s future amid the regulatory challenges.
The Howey Test and Bitcoin’s Exemption
The SEC’s evaluation framework for determining whether digital assets qualify as securities is based on the Howey Test. This test originates from a 1946 Supreme Court case involving a Florida orange grove investment scheme. Bitcoin, according to its defenders, does not meet the criteria set by the Howey Test. Unlike other cryptocurrencies, it was not created by entrepreneurs seeking profits through pre-listed private sales to institutional investors. Instead, it was developed as an open-source concept by anonymous software developer Satoshi Nakamoto in January 2009.
Bitcoin as a Commodity
While there is no explicit legal declaration on whether bitcoin is a security or a commodity, SEC Chair Gary Gensler and former Chair Jay Clayton have both indicated in public statements that they do not view bitcoin as a security. Most investors consider it to be a commodity, similar to gold or wheat. Bitcoin’s status as a commodity is expected to persist, providing further reassurance to investors.
Impact on Other Cryptocurrencies
The SEC has identified 19 different crypto tokens, accounting for approximately 11% of the total crypto market capitalization, as securities in its lawsuits against Coinbase and Binance. Consequently, these coins experienced declines following the legal action. BNB, Cardano’s ADA, Polygon’s MATIC token, and Solana’s SOL token were among the cryptocurrencies affected.
Market Reaction and Withdrawals
Coinbase’s stock initially fell by 12% following the SEC lawsuit but later rose by 2.8% at the opening of the next trading day. Customers reacted to the news by withdrawing $105 million from Coinbase within 24 hours of the lawsuit, adding to the $1.3 billion lost in the previous 24 hours. Similarly, Binance witnessed customer withdrawals of $492 million and $1.4 billion in the two preceding 24-hour periods.
Despite the challenges faced by the cryptocurrency industry due to the SEC lawsuits, bitcoin’s exempt status from being classified as a security has provided a level of stability and confidence to its investors.
Yahoo Finance: One winner in the SEC’s clash with crypto: bitcoin
U.S. Securities and Exchange Commission (SEC): Framework for “Investment Contract” Analysis of Digital Assets