A U.S. federal court dealt a blow to the SEC’s regulatory approach, when it ruled that digital assets traded on Kraken were not securities. This ruling not only impacts the SEC’s ongoing crackdown on crypto firms but also raises fundamental questions on the agency’s authority to classify tokens as securities.

The SEC’s broad assertion that “tokens are securities” has been facing increasing scrutiny over the years. And with the court finding this concept as “unclear” and “confusing,” echoing sentiments from the Ripple case, this is a massive win for Kraken and for the broader digital asset ecosystem.

Today, the Federal Court for the Northern District of California ruled, as matter of law, that none of the tokens trading on Kraken are securities. This is a significant win for Kraken, for the principle of clarity and for crypto users everywhere. It also confirms Kraken’s…

— Marco Santori (@msantoriESQ) August 23, 2024

It should be noted that the SEC initiated a massive crackdown on crypto firms in 2022 after collapse of the Terra ecosystem, claiming that virtual asset service providers are providing their services in the United States without registering their offerings as securities with the regulator.

However, the SEC cannot move forward in the case with its “tokens are securities” theory and will have to prove that for every alleged transaction on Kraken, that the Howey Test factors are satisfied. Notably, in a post on social media platform X (previously known as Twitter), the Chief Legal Officer at Ripple, Stuard Alderoty, said:

“Bad news for the SEC, whose entire regulation-by-enforcement strategy hinges on that failed premise.”

Alderoty added that this is another massive loss for the SEC, which also lost in a similar argument when Judge Analisa Torres ruled that XRP was not a security when sold to retail investors.

While the Kraken case will proceed to discovery, the onus is now on the SEC to prove that each transaction on the trading platform meets the Howey Test criteria for a security.

The post Kraken Win: Court Rejects SEC’s ‘Tokens are Securities’ Claim appeared first on Coin Edition.