SEC Warns That Filecoin May Be Considered A Security

By Kevin • May 19, 2023 10:28 pm • Comments

It looks like the SEC is once again accusing another digital asset to be a security just like what it did to XRP in the past.

Most recently, the SEC has asked Grayscale to withdraw its application for a Filecoin Trust product because it mentioned that it believed that Filecoin could be considered a security.

Grayscale then responded to the SEC and stated that Filecoin is not a security and had already prepared a report for the SEC that would explain the reasons why,

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It is unknown at this time whether or not the SEC will actually accept Grayscale’s explanation, but it is clear that this could be a risk to the formation of Filecoin Trust product.

Once again, the actions of the SEC are limiting what services and products that crypto firms are able to provide in the country.

CoinTelegraph reports:

“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.”

Grayscale noted that it “cannot predict” whether or not the SEC will be persuaded into accepting its explanation, and may “seek accommodations” for the registration of the trust.

Alternatively, the investment firm warned that it may be forced to dissolve the trust in its entirety.

California-based tech company Protocol Labs, Filecoin is a decentralized platform for data storage, where users pay in the native FIL token to have their data stored with providers, who in turn earn FIL for their services.

This update from the SEC marks a continuation of the watchdog’s crackdown on crypto products, which has recently come down hard on a number of U.S. crypto exchanges.

This is not the first time that Grayscale has clashed with the SEC as it has had many encounters with the regulator before.

Grayscale had also attempted to get Bitcoin spot ETFs approved by the SEC before, but its applications were denied by the regulator.

As a result, the number of crypto products that are available on the US market are still extremely limited compared to what is available overseas.

This makes it difficult for institutional investors to get more exposure to the crypto markets and thus slows down the growth of the industry.

The SEC continuing to accuse digital assets such as Filecoin to be securities is also concerning given that it has not given any clear reason as to why it would be classified as a security.

Bitcoin.com concludes:

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.”

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