Collapse of FTX Can Bring SEC Closer to Banning Cryptocurrencies

UTC by Bhushan Akolkar · 2 min read
Collapse of FTX Can Bring SEC Closer to Banning Cryptocurrencies
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The US SEC has already launched its first attack declaring that FTX’s native cryptocurrency FTT token was a security.

The dramatic collapse of the crypto exchange FTX last month has sent shockwaves across the entire crypto industry. Millions of FTX users have lost their hard-earned money while trading with FTX. The situation with FTX has pushed the SEC to gather enough legal ammunition which might lead to the consideration of banning digital assets and other centralized crypto exchanges.

Earlier this week on Wednesday, the US Securities and Exchange Commission (SEC) announced charges against two major allies of FTX founder Sam Bankman-Fried. This includes FTX co-founder Gary Wang and Alameda Research’s former CEO Caroline Ellison. The duo has pleaded guilty to federal authorities.

SEC: FTX (FTT) Token Is a Security

In a further development, the SEC said that the FTX Exchange’s native FTT token sold as an investment contract was a “security”. In its complaint to the court, the SEC stated:

“If demand for trading on the FTX platform increased, demand for the FTT token could increase, such that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings. The large allocation of tokens to FTX incentivized the FTX management team to take steps to attract more users onto the trading platform and, therefore, increase demand for, and increase the trading price of, the FTT token.”

As a result, the SEC has also charged Ellison and Wang with securities fraud for offering FTT as unregistered securities and for manipulating the price of FTT. The SEC has also labeled the FTT token as an “illiquid crypto asset”.

Furthermore, the securities regulator also mentioned the SEC’s “buy and burn” program adding that this initiative, along with several other exchange tokens is similar to stock buyback wherein revenue from FTX would repurchase and burn FTT, thus increasing its value.

SEC Should Ban Cryptocurrencies

Earlier this week, Sherrod Brown, chairman of the US Senate Banking Committee said that the US SEC and the CFTC should consider banning cryptocurrencies. The US banking committee has jurisdiction over all the financial institutions in the US. In an appearance NBC’s “Meet the Press” on December 18, Brown said:

“We want them [the SEC and CFTC] to do what they need to do at the same time, maybe banning it, although banning it is very difficult because it would go offshore, and who knows how that would work”.

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