Crypto exchange Bittrex is seeking to dismiss charges made by the U.S. Securities and Exchange Commission, according to a recent court filing.
Bittrex argues that the SEC lacks the authority to regulate cryptocurrencies as securities unless explicitly granted by Congress. The exchange stresses the importance of establishing a well-defined regulatory framework that accommodates digital assets.
The exchange’s argument aligns with Coinbase’s, indicating a strategic move to leverage Coinbase’s legal framework and build a unified defense against the SEC. Both exchanges contest the SEC’s allegations regarding trading investment contracts.
They acknowledge that the initial sale of certain crypto assets could be classified as securities contracts. However, Bittrex and Coinbase argue that assets traded on secondary markets should be considered commodities or other types of digital assets.
A key argument put forth by Bittrex is that the SEC failed to communicate that their actions were prohibited. Crypto companies commonly use this defense strategy to challenge the SEC’s allegations.
Earlier, Bittrex released a statement expressing its frustrations with the lack of specific guidance provided by the SEC.
“For over five years, […] the SEC would not provide notice of the specific conduct that it thought violated the federal securities laws,” said Bittrex.
“Specifically, on multiple occasions, we asked them to tell us what digital assets on our platform they viewed as securities, so that we could review and potentially delist them. They refused to do so.”
The statement highlighted the exchange’s repeated requests for clarification on which digital assets the SEC considered securities so that they could review and potentially delist them. Bittrex claims that its requests went unanswered.
The move by Bittrex came amid a broader push for regulatory clarity in the cryptocurrency industry. Industry leaders like Binance have been calling for well-defined regulatory frameworks that provide legal certainty while allowing for innovation and growth.
Critics have accused the SEC of engaging in “regulation by enforcement” by retroactively classifying tokens as securities when filing complaints.
The lack of clear regulations has resulted in a patchwork of interpretations, as noted by analysts. This leads to uncertainties for businesses operating in the U.S. crypto space. The SEC crackdown at Binance and other exchanges had caused further market volatility. Over the past few months, crypto’s total market capitalization has decreased by almost $200 million.
From the regulator’s point of view, SEC chair Gary Gensler considers “everything other than Bitcoin” as securities. He views native tokens of networks that use staking as securities. It is because investors expect profits based on the efforts of others. Gensler’s guiding principle is the same test used by his predecessors, the “Howey Test.”
The SEC filed four Exchange Act violations against Bittrex, Bittrex Global and co-founder William Shihara last April. The federal agency accused the defendants of operating an unregistered national securities exchange, broker and clearing agency in the U.S.
The SEC also claims that six tokens traded on Bittrex — OMG, Dash, Algorand ALGO, Monolith (TKN), Naga (NGC) and IHT Real Estate Protocol (IHT) — are securities.
The SEC alleges that Bittrex and Shihara advised clients to remove “problematic statements” to avoid regulatory scrutiny. The SEC seeks disgorgement, penalties and permanent injunctions of Bittrex’s U.S. business through the suit.
Gurbir Grewal, the director of the SEC Enforcement Division, said that this action not only holds Bittrex accountable but also serves as a warning to other non-compliant crypto market intermediaries. Bittrex reportedly received a Wells notice in March, which warned of the impending charges.
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