FTX US Will Decide What Counts as a Crypto Security, CEO Bankman-Fried Says

(Bloomberg) — The US arm of crypto trading giant FTX will begin conducting its own analysis to determine whether assets are securities before listing them, founder Sam Bankman-Fried said in a blog post published on Wednesday.

Most Read from Bloomberg

While US regulators have said some tokens, like Bitcoin, aren’t securities, “there are a number which are unclear,” the crypto executive wrote. Until there’s more clarity on the issue, FTX US will have its legal team conduct an analysis of each asset it wants to list under a decades-old framework for assessing whether something is a security, known as the Howey Test, Bankman-Fried added.

The company’s statements come during a regulatory turf war in the US: Securities and Exchange Commission Chair Gary Gensler has said most digital assets are securities that are subject to his agency’s rules, while the Commodity Futures Trading Commission is pushing for legislative changes that would give it more direct authority to oversee the asset class.

Bankman-Fried said if FTX’s internal analysis finds a token isn’t a security, it’ll be treated as a commodity unless the SEC or a court finds otherwise. And if the company determines the asset may be a security, it won’t list the token in the US unless there’s a clear path for registration, he said.

This type of internal vetting doesn’t guarantee that an exchange will be spared from regulatory scrutiny. The SEC in July identified several crypto assets as securities as part of an insider trading case against a former Coinbase employee and two others. The regulator is separately probing whether Coinbase improperly let Americans trade unregistered securities; that review predated the insider trading investigation.

In a blog post published after the insider trading allegations against its former employee, Coinbase maintained that none of the assets identified by the regulator and listed on its exchange were securities. “[In] the absence of a concrete digital asset securities regulatory framework from the SEC, we remain confident that Coinbase’s rigorous review process keeps securities off Coinbase’s platform,” Paul Grewal, the company’s Chief Legal Officer wrote.

Coinbase said Thursday in response to questions after Bankman-Fried’s post that it already analyzes and reviews digital assets before making them available on its exchange. Most assets are rejected for listing, the firm added.

A spokesperson for Binance — the world’s largest crypto exchange — said in emailed responses that for now it isn’t “actively engaged” in the US discussion over the status of tokens. The firm added that “we believe 99% of crypto assets should be classified as commodities based on their use case.”

The US arm of Binance announced in August that it was delisting the Amp token, which the SEC had identified as a security.

(Updates with Coinbase, Binance comments from the seventh paragraph.)

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.