eToro USA Resolves SEC Allegations, Restricts Cryptocurrency Trading Selections

eToro has reached a settlement in another SEC enforcement related to cryptocurrencies by consenting to pay US$1.5 million (AU$2.2m) and reduce its cryptocurrency portfolio to Bitcoin, Bitcoin Cash, and Ether only.

The SEC alleged that eToro was illicitly operating as an unregistered securities broker and clearing agency by allowing the trade of cryptocurrencies as securities.

Observers note that this resolution with eToro, a smaller participant among US cryptocurrency exchanges, might hint at the SEC’s future determinations regarding which digital currencies are not deemed securities.

Related:Coinbase Opposes SEC’s Take on DEX Regulation Due to ‘Irrational’ Analysis and Innovation Risks

SEC Regards Settlement as Precedent for Crypto Exchanges

According to the SEC’s press release, since at least 2020, eToro unlawfully enabled U.S. customers to transact in crypto assets classified as securities without the necessary registration.

The legal accord mandates eToro to permit existing cryptocurrency trades over the next 180 days, after which it will restrict trading activities solely to Bitcoin, Bitcoin Cash, and Ether.

Gurbir S. Grewal, the SEC’s Enforcement Division Director, remarked that the agreement serves to boost U.S. investor safeguards and demonstrates how other crypto exchanges might achieve regulatory compliance:

eToro has elected to adjust its practices by eliminating tokens characterized as investment contracts from its platform, aligning with the regulatory framework in place. This adjustment not only strengthens investor protection but outlines a regulatory model for other cryptocurrency intermediaries.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement

eToro did not admit or deny any of the allegations as part of the settlement.

The settlement also implicitly indicates the SEC’s likely stance that Bitcoin, Bitcoin Cash, and Ether are not securities, in the absence of formal regulatory guidance. Joseph Tully, a legal expert in securities litigation, opined to CoinDesk:

The SEC’s recognition of BTC, BCH, and ETH suggests these three are commodities rather than securities. The operative term here is ‘at least’, implying there may be others, although there’s no definitive legal direction based on this settlement.

Joseph Tully, Securities litigation lawyer at Tully & Weiss

Cochrane Criticizes SEC’s Misleading Settlement Narrative

Adam Cochrane, a partner at a Web3 venture capital firm, criticized the SEC on X / Twitter for its deceptive portrayal of the eToro settlement. He emphasized that unlike other exchanges such as Coinbase, eToro does not facilitate direct spot crypto trading but rather trades bundled cryptocurrencies akin to contracts-for-difference (CFDs).

Cochrane points out that the crux of the legal issue lies in the securitization of cryptocurrencies, not the cryptocurrencies themselves, contending that the SEC’s account of compliance through token removal is skewed.

He argues that it was the revocation of the securities grounded on token values that rendered eToro compliant, as reflected in his tweet: “The concern was eToro’s framework, not the assets they offered.”

Related:Ripple’s Stu Alderoty Anticipates Possible SEC Appeal

Cochrane accuses the SEC of repeatedly employing the tactic of exploiting unrelated breaches in order to make an exchange restrict its cryptocurrency offerings as part of a settlement: