Are Cryptocurrencies Financial Securities

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Are Cryptocurrencies Financial Securities

Can Cryptocurrencies Become Financial Securities

It has been lately in debates across the world on the topic whether cryptocurrencies are financial securities or may turn up in the future. Many argue the segment should be counted in the mainstream as its market capitalization has been on the rise and has reached to about $1.5 trillion now. It was at a peak in December at about $2.3 trillion. In January 2021, the market cap was $776 billion.

The market growth is explosive and simultaneously the regulatory authorities, as well as financial agencies, are ramping up their scrutiny in the segment. US President lately called for its federal agencies to examine closely the benefits and risks of cryptocurrencies.

As of now, cryptocurrency is an independent entity and without any control from banks, exchanges, countries or authorities. This is one of the primary reasons for the segment to become extremely volatile. It is simultaneously susceptible to fraudulent activities. It lacks enough investor protection. The SEC is looking for regulatory oversight of it.

The first cryptocurrency was launched in 2009. It was Bitcoin, which is currently the largest with respect to market capitalization. It is now being debated how best to place the segment into traditional categories and remove its decentralized ecosystem.

SEC Chair Jay Clayton said earlier that cryptocurrencies can only be treated as commodities and not securities. However, in recent years the terms like asset, currency, tokens and coin are being used to describe products of the segment and it is becoming difficult to categorize these.

SEC argues an asset should have an investment contract to be counted as security. It should have money investment, common enterprise and expectation of profits from the efforts of others.

The crypto market is now flooded with thousands of cryptocurrencies and some of the major ones are Ethereum, Dogecoin, Litecoin and Ripple. The coins are traded on exchanges like Coinbase and Binance.

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