Do You Own Solana, Cardano, or Polygon? The SEC Wants to Control Your Crypto

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The SEC says many cryptocurrencies are actually securities. Find out how the security vs. commodity debate could impact your crypto investments. 

I read the Securities and Exchange Commission’s (SEC) complaint against Binance on Monday with mounting horror. Not only does the regulator make some pretty serious allegations about how this popular crypto exchange handles our money, it also labeled several top cryptos — including Solana, Cardano, and Polygon — as securities.

To be fair, the SEC has been hinting for some time that it considers most cryptocurrencies to be unregistered securities. But this week’s charges up the ante considerably. So what’s all the fuss about? And what does it mean for your portfolio?

Security vs. commodity: The big debate

There are various types of securities. These include equity securities such as stocks, and debt securities such as bonds. If an asset is classified as a security, there are strict rules about how they can be traded and how they share information. Until now, most cryptocurrencies have fallen outside of the SEC’s remit. They have been treated as commodities, bringing them under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

But the SEC thinks it should be in charge of regulating many existing cryptocurrencies and cryptocurrency platforms. The chief reason it thinks most cryptos should be treated as securities is something called the Howey Test. This defines any project as an investment where there is “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” In its complaints against Binance and Coinbase, it details the way various listed cryptocurrencies fit this definition.

The SEC says these 19 cryptocurrencies are securities in recent filings

In the past few years, the SEC has said several specific cryptos are actually securities. The highest profile of these is Ripple’s XRP token. The SEC filed a lawsuit against Ripple in 2020, and the court case — which hinges on whether XRP is a security — is ongoing.

Most recently, the SEC labeled the following 19 cryptocurrencies as securities in its filings against Binance and Coinbase:

Solana (SOL)Cardano (ADA)Polygon (MATIC)Filecoin (FIL)The Sandbox (SAND)Axie Infinity (AXS)Chiliz (CHZ)Flow (FLOW)Internet Computer (ICP)NEAR Protocol (NEAR)Voyager Token (VGX)Dash (DASH)Decentraland (MANA)Algorand (ALGO)COTI (COTI)Cosmos (ATOM)BNB (BNB)Binance USD (BUSD)Nexo (NEXO)

What to do if the SEC thinks your cryptos are securities

If you own Solana, Cardano, Polygon, or any of the other cryptos listed above, be prepared for potential price drops and issues with liquidity. CoinGecko data shows XRP fell over 60% following the lawsuit announcement. Plus, a number of crypto exchanges delisted the token. As such, there is a chance your crypto exchange could delist these projects in an attempt to avoid SEC sanctions.

That said, it is early days and it’s important not to panic. Things have changed a lot since the SEC brought its case against Ripple. Not only that, but XRP is still one of the top 10 cryptos by market capitalization and the project is still going strong.

Here are some moves to consider.

1. Diversify your investments

Cryptocurrencies are high-risk investments and there is a lot we don’t know about how the industry will evolve. Many experts suggest crypto make up no more than 5% of your portfolio. That way you benefit if prices again go to the moon, but a crypto collapse won’t devastate your wealth-building plans. If you don’t currently own stocks or other assets, now may be the time to start building a more diversified portfolio. Check out our list of top stock brokers for more.

2. Avoid cryptos that could be labeled securities

If you’re worried about SEC controls, consider putting a higher proportion of your crypto holdings into Bitcoin (BTC). Arguably the most decentralized of all cryptos, Bitcoin is the only crypto SEC Chair Gary Gensler has said is definitely not a security.

Ethereum (ETH), the second biggest crypto, wasn’t named in the recent filings. However, Gensler hasn’t ruled out the possibility that Ethereum’s switch to proof-of-stake might make it a security.

3. Move your crypto assets to a wallet you control

If you hold significant amounts of crypto in a custodial wallet with a centralized exchange, your assets are more at risk from platform failure, hackers, or SEC actions. There are risks to keeping everything in a crypto wallet you control — for example, if you lose your seed phrase you might never be able to access your assets again. Even so, if you’re concerned a platform might delist a token you own, it’s worth learning more about how crypto wallets work.

4. Hold and wait out the storm

Buy-and-hold investors might opt to do nothing and let any SEC actions play out. As long as any action from the SEC doesn’t change your long-term thesis about these projects, that’s a viable strategy.

It is early days

The SEC’s moves come at a time when lawmakers are considering a wider crypto regulatory framework. We don’t know what it will decide. For example, Washington may instead give the CFTC more power in crypto regulation. It might create different controls for digital assets. It might give more power to the SEC.

We also don’t know how the SEC’s case will play out in court. Two and a half years on, and the Ripple case is still ongoing. Coinbase CEO Brian Armstrong tweeted that he sees the case against the exchange as an opportunity. “We’re proud to represent the industry in court to finally get some clarity around crypto rules,” he said.

If the SEC is able to categorize many top cryptos as securities, it could change the landscape for crypto investors. Just remember, it isn’t all doom and gloom. Sure, it could change the way ordinary Americans buy and sell crypto. But a stronger regulatory framework could also build trust and actually benefit the industry in the long term.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has positions in Algorand, Bitcoin, Cardano, Chiliz, Cosmos, Decentraland, Ethereum, Filecoin, Near Protocol, Polygon, Solana, The Sandbox, and XRP. The Motley Fool has positions in and recommends Bitcoin, Cardano, Cosmos, Ethereum, Polygon, and Solana. The Motley Fool has a disclosure policy.

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