The SEC is focusing on small cryptos to reinforce a case of oversight

The Securities and Exchange Commission is apparently looking at a trio of smaller, privacy-focused cryptocurrencies, including Stellar’s lumen token, which was revealed in court recently.

Grayscale Investments, which holds $15.3 billion and $5.8 billion respectively, disclosed in a June filing for its Stellar Lumens Trust, Zcash Trust, and Horizen Trust that the regulatory authority has requested the legal studies it relied on to determine that the three tokens are not securities.

The Securities and Exchange Commission (SEC) has declared that virtually all cryptocurrencies except bitcoin are securities, which, among other things, makes it extremely difficult for them to be used for payments. If Grayscale’s conclusions are found to be true, it would likely sell unlicensed securities and would likely dissolve the trusts.

The Stellar Foundation has also been pushing the blockchain as a potential central bank digital currency platform, with a $2.6 billion market capitalization.

Regardless, it’s worth noting that an inquiry is not the same as declaring lumens or other tokens as securities. Nonetheless, Grayscale has nearly 20 trusts for many coins, yet targeted inquiries focused only on these three, according to CoinDesk.

Targeting Small Tokens

Grayscale claims that the SEC has done the same with Zcash and Horizen. These two are best known as privacy coins because they allow users to conceal their transactions.

Privacy Coins: Blow for Freedom — or Boon for Crime?

As the issue of privacy coins and mixing services becomes more prevalent in recent months, regulators and prosecutors have drawn closer to the issue. For the first time, computer code rather than a person or organization has been targeted.

As part of an insider trading lawsuit filed against one of the major crypto exchanges in July, the Securities and Exchange Commission specifically declared nine small and relatively obscure cryptocurrencies listed on Coinbase to be securities.

That decision was widely accepted as a clue that the regulator is hoping to get a court ruling that says a number of cryptocurrencies are securities before Congress drafts regulations clarifying the status of cryptocurrencies under the law.

Most elected officials who have written draft laws governing cryptocurrency have acknowledged that such a measure would not be discussed until next year, but those bills — including Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) — would declare most cryptocurrencies to be non-securities, handing regulatory authority over to the Commodity Futures Trading Commission.

Dragonchain, a cryptocurrency that was launched in 2017 via an initial coin offering (ICO), was another unusual SEC target, according to Cointelegraph on August 16. While the SEC sued a number of businesses for launching ICOs around the same time, it practically stopped that a few years ago when ICOs were phased off as a result.

Another indicator that the SEC is eager to challenge another ICO, especially one that has just five years old, is the fact that cryptocurrency legislation is taking center stage in court.

Lumens are a much larger and better-known token than any of those. The Stellar blockchain was launched on July 31, 2014, making it one of the first cryptocurrencies to challenge bitcoin as a payments token.

It would suggest a fresh intention to focus on higher-profile cryptocurrency and coins that are specifically focused on use in payments rather than broad smart contract platforms competing with Ethereum.

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