Retail trading company eToro has halted the majority of its crypto offerings in the United States as part of a settlement with the U.S. Securities Exchange Commission. This decision comes after the SEC raised concerns over eToro’s compliance with securities laws.
As part of the agreement, eToro will pay a $1.5 million penalty to address accusations that it acted as an unregistered broker and clearing agency for crypto transactions. The regulator accused eToro of allowing its U.S. users to trade digital assets, which the agency considers to be securities, without meeting the necessary registration requirements under U.S. securities regulations.
While eToro did not admit or deny the SEC’s allegations, the settlement impacts only its U.S.-based users.
In response to the settlement, Yoni Assia, eToro CEO and cofounder, stated that this resolution will enable the company to concentrate on offering innovative products within its U.S. business portfolio. Assia also noted the importance of complying with regulations globally, noting that eToro has been an early adopter in the crypto space and is committed to adhering to the rules while maintaining close relationships with regulatory authorities.
Moving forward, U.S. customers of eToro will be limited to trading only three cryptocurrencies: Ether, Bitcoin and Bitcoin Cash. For users who currently hold other digital tokens, the platform will provide a 180-day window during which they can sell those assets.
Gurbir Grewal, director of the SEC’s division of enforcement, offered commentary on the ruling, saying that eToro is taking proactive steps to comply with the law by taking tokens categorized as investment contracts off its site. Grewal added that other cryptocurrency companies looking to comply with regulations may use this move as a model in addition to enhancing investor protection.
The commission has long argued that most cryptocurrencies should be classified as securities and therefore must comply with registration requirements. However, many cryptocurrency companies have pushed back against this view, arguing that digital assets differ fundamentally from traditional securities, such as stocks and bonds.
This has led to ongoing legal disputes between the SEC and several cryptocurrency platforms, including Kraken, Coinbase and Binance. The companies contend that crypto assets fall outside the definition of securities, with their unique characteristics setting them apart from traditional financial instruments.
In a broader context, eToro has been considering an initial public offering (IPO), with the possibility of listing in either London or New York. In 2021, the company had planned to go public through a $10.4 billion merger with a blank-check company. However, that plan was abandoned in 2022.
What most, if not all, industry actors such as HIVE Blockchain Technologies Ltd. (NASDAQ: HIVE) (TSX.V: HIVE) would appreciate the most from federal authorities is a comprehensive regulatory framework for the crypto and blockchain industry so that all parties are aware of what is expected of them. Regulation by enforcement action in the absence of specific laws creates uncertainty regarding the direction of the industry.
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