Regulatory Battle: Grayscale Challenged by SEC’s Designation of Filecoin as Security

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Regulatory Battle: Grayscale Challenged by SEC's Designation of Filecoin as Security

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Grayscale Investments, the largest digital currency asset manager by assets under management, made an announcement on May 17 regarding a comment received from the U.S. Securities and Exchange Commission (SEC). According to the SEC, the crypto asset filecoin qualifies as a security under federal securities laws. Consequently, the securities regulator has requested that Grayscale withdraw the registration statement for its Filecoin Trust.

SEC Labels Filecoin a Security

In 2023, the U.S. Securities and Exchange Commission (SEC) made significant determinations regarding the classification of various crypto assets. The regulatory body identified several crypto assets, such as DASH, ALGO, LUNA, UST, and OMG, as securities or investments based on their definition.

Notably, DASH, ALGO, and OMG were explicitly mentioned in the lawsuit targeting Bittrex. Bringing the focus to filecoin (FIL), the latest development arises from Grayscale’s update on the registration statement for the Grayscale Filecoin Trust.

Grayscale revealed that they recently received a “comment letter from the SEC staff” on May 16, stating that the underlying asset FIL in their trust is legally classified as a security. In response, the digital asset manager has been asked by the SEC to withdraw the registration statement for the Filecoin Trust.

However, Grayscale strongly disagrees with the SEC’s viewpoint and remains determined to challenge the decision through litigation. “Grayscale does not believe that FIL is a security under the federal securities laws and intends to respond promptly to the SEC staff with an explanation of the legal basis for Grayscale’s position,” the company said.

Filecoin (FIL) is a decentralized storage network designed by Protocol Labs, and the computer scientist Juan Benet, who is well known for his creation of IPFS. The mainnet for Filecoin was introduced in October 2020, and the following year in March 2021, Grayscale introduced the Grayscale Filecoin Trust.

In the update, Grayscale acknowledges that the SEC’s response to their position remains uncertain, and the company may face a crucial decision: either “register under the Investment Company Act of 1940 or, alternatively, seek dissolution of the trust.”

Will Grayscale Investments’ dispute with the SEC over Filecoin’s security classification and other cases like these set a precedent for the future regulation of digital assets? Share your thoughts about this subject in the comments section below.

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