This decision marks a significant victory for Kraken, the principle of regulatory clarity, and crypto users everywhere.
It also reaffirms Kraken’s long-standing stance that it does not list securities. Let’s explore more about this news for Kraken.
Kraken Thanks the Court and Government for Regulatory Clarity
In its ruling, the Court criticized the SEC’s concept of “crypto-asset security” as “unclear at best and confusing at worst”. The Court took issue with the SEC’s attempts to mischaracterize Kraken’s position. This will question why the SEC insisted that a “written contract” was necessary for a token to be classified as a security. This ruling aligns with the Court’s earlier decision in the Ripple case. This emphasizes that while tokens themselves are not securities, agreements involving tokens might be.
The Court’s decision represents a decisive blow to the SEC’s “tokens are securities” theory. Moving forward, the SEC will be required to prove that the Howey Test factors are satisfied for each alleged transaction on Kraken, a challenging burden that Kraken is prepared to address. The Howey Test focuses on factors such as the expectation of profits and the efforts of others in generating returns. This is what the CLO of Kraken said about it:
Source: X
More About Kraken’s Tokens
Kraken’s legal team is ready to contest these claims and demonstrate that the Howey Test criteria are not met. The SEC’s approach of regulating by enforcement, which involves extensive and costly discovery processes for millions of transactions, will be put to the test. This ruling underscores the difficulty and inefficiency of regulating the crypto industry through such methods.
Source: X
The decision also highlights a broader need for regulatory clarity. The ruling confirms what many in the crypto industry have long argued: that the SEC’s enforcement-based regulation is not a viable approach for overseeing digital assets. To ensure industry stability, protect consumers, and promote blockchain innovation, Congress must pass a comprehensive market structure framework.
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