eToro to Limit Cardano and Tron Trading in the U.S.

What's behind eToro's move to delist Cardano and Tron?

eToro just told its U.S. customers that soon, they won't be able to open new positions or receive staking rewards from Cardano (ADA) and TRON (TRX). It says the decision is due to regulatory concerns but doesn't explain why these two coins were singled out.

The crypto broker stresses that it will not force users to sell their positions yet. However, according to its Nov. 23 blog post:

• From Dec. 26, U.S. users won't be able to open new ADA or TRX positions.
• From Dec. 31, U.S. users won't be able to stake either of these coins.
• Users in the U.S. will still be able to sell their ADA or TRX on the platform until Q1 2022.

Right now, eToro users can't move ADA or TRX onto the platform's external wallet (the wallet does not support the same tokens as the brokerage). But eToro says it is working to enable this functionality and hopes to have it working by early 2022. Once this happens, the broker will also limit U.S. users' ability to sell Tron and Cardano.

Is the SEC about to crack down on more cryptocurrencies?

Increased regulation is an ongoing concern for cryptocurrency platforms, especially as various authorities crack down on lend-earn products and raise concerns about stablecoins.

Most cryptocurrencies are classified as commodities, so they aren't subject to the same rules as securities like stocks. However, Securities and Exchange Commission Chair Gary Gensler has warned that a number of cryptocurrencies should be classified as securities -- which would bring them under the remit of the SEC. Cryptocurrency exchanges that trade crypto-securities would need to register with the SEC and follow much stricter rules.

So, what makes something a security? Good question. And one that's at the heart of a lot of regulatory issues we see today.

In one of his first speeches on crypto after taking up his position, Gensler said there are many different types of security, including stocks, bonds, and investment contracts. He quoted the following Supreme Court definition of an investment contract: "A person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party."

There are two aspects that matter: The concept of a "common enterprise,'' and the expectation of profit. The crux of the SEC's lawsuit against Ripple (XRP) is that the token operated as an unregistered security because it is a common enterprise. It argues that Ripple is not as decentralized as Bitcoin (BTC) and Ethereum (ETH). And that lack of decentralization is what makes it a security -- the SEC says the development and distribution of XRP was conducted in a centralized way.

Ripple's defense is that the SEC should have warned that XRP was considered a security and that the regulations have never been clear.

eToro's decision amplifies that sense of regulatory confusion. The speculation -- and worry -- is that eToro might have delisted Cardano and Tron on fears that they are more like securities than commodities.

What does this mean for Cardano and Tron?

The decision to delist Tron is not necessarily expected but is understandable. Back in June last year, analysis from the Crypto Rating Council showed Tron was most at risk of being declared a security. TRX is not available from top crypto platforms like Gemini, Coinbase, Robinhood, or SoFi. U.S. investors can currently buy it from Kraken and FTX.US or from a decentralized exchange.

Delisting Cardano is a lot more surprising. Indeed, Cardano's founder Charles Hoskinson said in a Twitter video that they'd been "blindsided" by the news. The news comes as another popular exchange, BitStamp, announces that it will list Cardano.

Cardano is a popular cryptocurrency listed on many U.S exchanges. And it takes compliance seriously. In August, the Cardano Foundation entered into a partnership with a regulatory technology company called ​​Coinfirm to ensure they stayed on the right side of anti-money laundering regulations. In addition, Hoskinson says the Cardano Foundation will hire almost 100 people next year to handle regulatory outreach and liquidity.

The crypto leader assured viewers that there are no regulatory issues on Cardano's side. He said it had not received any threats or subpoenas from any regulatory agencies and said eToro's move was the result of a systemic lack of clarity.

Should crypto investors be worried?

At this stage, it is difficult to say. A lot depends on whether eToro is simply being cautious or whether this is an indication that the SEC will step up its efforts against unregistered securities and the platforms that trade them.

It's worth remembering that -- in spite of the lawsuit against Ripple -- XRP remains in the top 10 cryptos by market cap. That said, its price did fall on the news of the lawsuit, and the coin has not been able to reclaim its 2017 all-time high.

We do know that increased regulation is in the cards, and the SEC has been clear that it plans to pursue unregistered securities in the crypto space. We still don't know how that's going to pan out, which cryptos will be affected, or how it will impact crypto prices.