Reports Say SEC May Intend to Back Down on Claiming SOL, ADA, MATIC are Securities

Is that the distant sound of flip-flopping I hear?

A court filing jointly submitted yesterday by the US Securities and Exchange Commission (SEC) and Binance, as part of their ongoing legal tussle, suggests the regulator might be performing an almighty flip-flop in its battle to label many leading crypto projects unregistered securities.

In the filing the regulator sought to amend its complaint against Binance in regards to what it calls “Third Party Crypto Asset Securities.” Although the SEC didn’t say precisely how it intends to amend its complaint, the filing means that the court will no longer be required to rule on whether a number of cryptocurrencies sold by Binance—including Solana (SOL), Cardano (ADA) and Polygon (MATIC)—are securities. 

This backdown seems to be part of a larger political shift in US politics towards a more crypto-friendly position as both sides realise a large number of voters will decide who to vote for based, at least partly, on the candidates’ digital assets policies.

Related: CFTC “Happy” to Take Over from SEC as Crypto Regulator, Says 80% of Coins are Commodities

Details of SEC’s Filing and Implications

The joint filing came in response to the court’s earlier minute order issued on July 9 in which the judge clarified some of her earlier comments, which Binance lawyers had misinterpreted to mean the securities status of the cryptocurrencies had already been removed from the case. 

In this latest filing the SEC clearly laid out its purpose, explaining that it:

…intends to seek leave to amend its Complaint, including with respect to the “Third Party Crypto Asset Securities” as defined in the SEC’s Omnibus Opposition to Defendants’ Motion to Dismiss, Dkt. No. 172, obviating the need for the Court to issue a ruling as to the sufficiency of the allegations as to those tokens at this time.

SEC

In non-legal mumbo-jumbo this essentially means the SEC intends to amend its complaint against Binance so that the court will no longer need to rule on the security status of a bunch of cryptocurrencies (the top ten of these tokens by market cap are SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI). That isn’t to say the SEC will never ask a judge to decide the security status of these or other tokens in future cases.

X / Twitter Reacts to the News

Many prominent figures in the crypto industry responded to the filing. Unsurprisingly most responses were negative, pointing out what they see as the SEC’s inconsistency and hypocrisy.

Ripple’s Chief Legal Officer, Stuart Alderoty, posted:

When a judge signals B.S. on the SEC’s claim that 10 tokens on Binance are securities, the SEC says “never mind.” But these tokens are left out to dry in the Coinbase suit. This isn’t how to regulate.

Stuart Alderoty, Ripple’s Chief Legal Officer

While the CryptoLaw account, which was founded by well known crypto lawyer John Deaton, referred to the findings in the SEC’s case against Ripple before calling on Gary Gensler to be replaced as head of the SEC:

So much for Judge Torres being wrong. Now even @GaryGensler is scrambling to back-edit his B.S. The token itself is not a security, but how it is packaged and sold might be. That’s the law to which Gensler shows no faithful allegiance. It’s time. #GenslersGottaGo

CryptoLaw on X

Both Sides of US Politics Clamouring for the Crypto Vote

The SEC’s request to amend its complaint seems like something of a backdown from the regulator in its crusade to label virtually all cryptocurrencies as securities (apart from Bitcoin and, for reasons most people can’t quite understand, Ethereum). Given the political climate around crypto at the moment, there’s reason to believe this backdown may be politically motivated.

In the lead up to this year’s presidential election both sides of US politics are vying to attract the crypto vote, with Trump so far courting crypto voters more aggressively, saying things like he’ll be the “crypto president” and last week at Bitcoin 2024 declaring he wants to make the US the “crypto capital of the planet.”

Related: Trump Urges to ‘Keep Your Bitcoin’ Because US Will Be ‘Crypto Capital’, Announces Plans to Make BTC a Strategic Reserve Asset

The Democrats have recently started to warm up to crypto too, perhaps spooked by Trump’s aggressive campaigning. Since replacing Biden as nominee, Kamala Harris has reportedly reached out to Mark Cuban to discuss crypto policy, and also announced plans for the Democrats to ‘reset’ its relationship with crypto. It’s also been suggested the Biden administration put pressure on the SEC to approve the Ethereum ETF.