What happened
For most top cryptocurrencies, it's been a rather daunting week. Formal lawsuits brought forward by the Securities & Exchange Commission (SEC) against both Binance and Coinbase Global have resulted in many tokens seeing stark declines. Notably, the SEC has focused some of its efforts on metaverse-related tokens, resulting in steep declines in some top names in this space.
At the time of writing, Internet Computer (CRYPTO:ICP), Decentraland (CRYPTO:MANA), and The Sandbox (CRYPTO:SAND) dropped 11.2%, 14.4%, and 15.4% from Friday's close last week.
So what
The charges against both Binance and Coinbase vary widely, and in many respects, are more closely associated with how the SEC thinks exchanges should be regulated. That's an entire discussion for another article.
But the key issue facing many metaverse tokens (and anything that's not really Bitcoin or Ethereum, to be honest) is the question of what constitutes a security. In the SEC's lawsuit against Coinbase, a number of cryptocurrencies were pointed to as examples of securities. The Sandbox and Decentraland were specifically called out, suggesting that some sort of regulatory pressure is likely to materialize over time.
For Bitcoin and Ethereum, which appear more likely to be classified as commodities, regulation is likely to come from the Commodity Futures Trading Commission. Many in the crypto community were hoping for such a classification for these tokens, but the SEC appears to have a different view.
Now what
Moving forward, it will be up to the key stakeholders in these various projects to make their case that their metaverse tokens are not, in fact, securities. Other high-profile lawsuits that have been ongoing for years, including that of XRP, put forward a roadmap to potential success in fighting the SEC (though XRP parent company Ripple hasn't officially won its case, yet).
That said, typically when the SEC or other government entities decide to go down the litigation route, it's unfavorable for the companies in question. These lawsuits will undoubtedly be closely watched by many in the crypto community moving forward. And with more information likely to surface as hearings take place and defense arguments are crafted, crypto investors will have more information to base their investing decisions on. For now, investors are doing the cautious thing and moving capital to the sidelines. I can't blame them.
