SEC ‘Regrets Confusion’ Over Crypto Asset Security Definition, Amends Binance Complaint

• The SEC admitted faults with using the term “crypto asset security.”
• The regulator said it won’t be using the term moving forward to avoid confusion.
• The agency’s revelation came as a footnote in the amended Binance complaint.

In an unexpected about-face, the US Securities and Exchange Commission (SEC) has acknowledged that it regretted using the term “crypto asset securities,” prompting a mea culpa for the uncertainty and “confusion it may have invited.”

The eyebrow-raising admission came from an amended complaint filed against Binance  on Sept. 12, marking a significant concession for the SEC, which has historically held firm to its assertion that the vast majority of crypto assets should be classified as securities.

Not All Crypto Assets Are Securities

The SEC has clarified that its use of the term “crypto asset securities” was merely a shorthand and not a classification of crypto assets themselves as securities. Going forward, the agency has vowed to avoid using the term altogether.

“Nevertheless, to avoid any confusion, the PAC no longer uses the shorthand term, and the SEC regrets any confusion it may have invited in this regard.”

The admission exposes the SEC’s previous overreach in applying securities laws to crypto assets without clear justification, a criticism that has long been levied against the agency in various high-profile cases, including those against Binance, Coinbase, and others.

However, it also raises hopes that the agency is shifting toward more transparent and reasonable regulations.

In a related development, the footnote also notes that the SEC will not challenge Binance’s claims that crypto assets offered during initial coin offerings (ICOs) do not remain securities in the secondary market.

“Defendants argue that, even if the Ten Crypto Assets were offered and sold as securities during the ICOs, they do not remain securities into perpetuity. The SEC is not advancing this argument.”

Nevertheless, the SEC’s decision not to challenge this argument could mark a significant turning point for the crypto industry, potentially paving the way for more favorable regulations in the future.

A Major Victory

Some of the industry’s most prominent executives have hailed the SEC’s admission of wrongly using the term “crypto asset securities” as a major victory.

This is because the admission, which comes after years of regulatory uncertainty and high-profile battles between the SEC and major crypto companies, has been a long time coming for many in the industry.

Coinbase’s chief legal officer, Paul Grewal, was among the first to weigh in on the development, calling it a remarkable representation of how the SEC has been trying to “mislead the court.”   

Stuart Alderoty, the chief legal officer of Ripple, said the admission  was a tacit acknowledgment that the agency had failed to prove that crypto tokens are investment contracts.

“Think it’s time for the SEC to admit it has become a twisted pretzel of contradictions,” he tweeted.

Alderoty had called out the SEC  earlier this month for deeming crypto assets as securities without mentioning the term even once in its court filing. The Ripple exec accused the agency of using the term “crypto asset security” to harass crypto companies.

About the Author

Prashant Jha

Prashant Jha is a crypto-journalist focused on the US and UK markets, his interests lie in blockchain technology and crypto adoption across emerging economies.

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