Tokens Continue to Take a Hit: is SEC Preparing to Target Crypto Projects?

The price of Bitcoin has dropped by 10 percent over the last 24 hours following a severe sell-off. Yet, several low market cap crypto and tokens have plunged by twice that amount, posting losses in the range of 20 percent. ERC20 tokens launched on top of the Ethereum blockchain network have performed especially poorly against both Bitcoin and the US dollar over the past several days.

Coinbase was cautious in listing tokens on its platform because in an event wherein the tokens listed by the exchange are identified as securities, Coinbase could be targeted by the US Securities and Exchange Commission (SEC) for the distribution of unregistered securities. It is possible, as government enforcement defense and securities litigation attorney at Kobre & Kim, Jake Chervinsky, said, the SEC is preparing to take down many cryptocurrency exchanges and initial coin offering (ICO) projects, with many pending cases in the hands of the commission.

“Remember all those subpoenas the SEC sent out earlier this year? Just because you haven’t heard about them recently doesn’t mean there aren’t dozens of investigations going on behind the scenes. Sooner or later, the floodgates will open,” Chervinsky said. In an official announcement, the SEC disclosed that EtherDelta co-founder Zachary Coburn agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty, showing that the case was settled between Coburn and the SEC prior to the release of the statement.

In the upcoming months, the cryptocurrency space is expected to see several pending cases against cryptocurrency exchanges and ICOs brought up by the SEC. The regulatory uncertainty in the ICO market surrounding tokens could lead to a decline in confidence from investors towards small market cap cryptocurrencies.

EtherDelta co-founder Zachary Coburn and the exchange were charged with the distribution of unregistered securities, which suggests that the SEC has cooperated with Coburn to understand the nature of several, if not dozens, of tokens considered securities under US regulations.