Algorand — The Securities and Exchange Commission (SEC) made some progress in its investigation against cryptocurrency exchange Bittrex on Monday.
Six cryptocurrencies were categorized as securities by the regulator, presenting them as possible crucial assets in the enforcement case against the crypto exchange.
The conundrum
Bittrex’s SEC case is complicated by the platform’s refusal to register with the SEC as an exchange, broker-dealer, or clearing agency.
The Securities Exchange Act of 1934 mandates registration before providing securities to customers.
In order to do so, the SEC would need to show that at least one cryptocurrency offered by Bittrex is a security.
The tokens
While SEC Chairman Gary Gensler has maintained that the term pertains to all cryptocurrencies with the exception of Bitcoin, the agency has lately singled out six.
The following tokens are classified as “crypto asset securities”:
- Algorand (ALGO)
- Dash (DASH)
- Monolith (TKN)
- Naga (NGC)
- OMG Network (OMG)
- Real Estate Protocol (IHT)
According to the group, the list will grow and is a “non-exhaustive list.”
Meanwhile, according to CoinGecko, Algorand has the highest market capitalization, valued at more than $1.6 billion.
The token has dropped by 4% in the previous day to $0.22.
Gensler and Algorand
Following the announcement of the new Bittrex case, cryptocurrency Twitter instantly linked Gary Gensler and Algorand.
The network, according to the SEC chairman, has tremendous technology that could support services like Uber.
Other lawsuits
The SEC has not filed any additional accusations against Bittrex as of Monday, and none of the six currencies listed have been identified as defendants.
JW Verret of Lawrence Law connects the legal strategy to past SEC litigation that used coins.
“It strikes me as very similar to the Wahi case,” he said.
Verret was referring to the SEC’s insider trading case brought in 2022 against former Coinbase Product Manager Ishawn Wahi and two others.
“They’re making claims that tokens are securities without suing the actual tokens themselves.”
The coins included in the SEC complaint against Wahi differ significantly from those disclosed in the Bittrex case.
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Howey Test
Cryptocurrencies are classified as securities under the Howey Test.
A 77-year-old lawsuit over a Florida citrus farm inspired the Howey Test.
The test is frequently employed as one of four components of the Securities and Exchange Commission’s four-pronged technique for determining whether an asset is a security.
The definition of security is “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
According to Fireblock Chief Legal and Compliance Officer Jason Allegrante, the absence of parallelism between the currencies in the Bittrex regulations and the Wahi case might be linked to the SEC “not trying to put all of its eggs in one basket.”
“Each case, depending on what the defendants want to do, is a potential test case,” said Allegrante.
“There’s probably assets they feel pretty strongly meet the definition of a security, and I guess they’re kind of picking from that list and sprinkling them in as they go [about] in different cases.”
Algorand
The SEC believes the Algorand Foundation is a common company based on the charitable organization’s involvement in developing and advertising an initial ALGO currency in 2019.
The lawsuit reads:
“In promoting the ALGO token sale, the Algorand Foundation tied the potential growth of the Algorand blockchain to potential demand for the ALGO token itself, and to its own commitment to preserving a price floor for ALGO.”
The complaint claims that ALGO was introduced to Bittrex’s global and US-based platforms in April 2020.
Furthermore, the SEC alleges that Algorand and the network foundation’s statements deceived ALGO investors into believing that Algorand Inc. and the network foundation’s efforts to build the brand’s protocol would be lucrative.
According to the Blockchain Association’s Marisa Tashman Coppel, the Wahi case could have substantial ramifications for the sector, including exposing other exchanges as venues for the trade of unregistered securities.
On Monday, ALGO was listed on Coinbase and Kraken, two well-known US-based exchanges.
Given the SEC’s efforts against Wahi, Verret believes a settlement, rather than a decision, is more plausible.
“I don’t think these claims could survive a challenge in court,” said Verret.
“I think parties will settle, and we won’t get a final answer, and that’s why the SEC is making these aggressive claims.”
