SEC says Bittrex's Algorand blockchain doesn't exempt from scrutiny

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SEC says Bittrex's Algorand blockchain doesn't exempt from scrutiny

Decentralization doesn't exempt a protocol or token from SEC oversight, the regulator said in a lawsuit filed against crypto exchange Bittrex on Monday.

SEC Chairman Gary Gensler is expected to double down on that point during an appearance before a Congressional subcommittee on Tuesday, according to a copy of his remarks.

The SEC said Bittrex sold unregistered securities. The alleged securities include DASH, one of the hundreds largest tokens by market capitalization.

The SEC said Algorand's ALGO, one of the 50-largest tokens by market capitalization, is a security measure.

The SEC added that both Algorand Foundation and Algorand Inc. both support the Algorand blockchain. People who bought ALGO would'reasonably believe' they would benefit from both parties' effort to grow the blockchain, growth that would drive demand for ALGO.

The SEC said Algorand is a 'common enterprise' whose investors can expect profits based on others' efforts. The key criteria for determining whether a specific asset is considered a security, according to US law, is that there is an expectation of profit based on other people's work.

It's clear the SEC thinks that the foundation can be the 'others' upon which investors are relying for a reasonable expectation of profits,' said Zach Rosenberg, principal at Degen Legal.

The crypto industry is renowned for its protocol-and-foundation arrangement. In addition to being a centralized group of tokenholders, immutable protocols and protocols often receive support from a foundation or a company run by the protocols' founding team.

Gensler has said that most crypto tokens are securities. He intends to make that case before the House Committee on Financial Services Tuesday, according to a copy of his prepared testimony available on the committee's website.

The crypto community has remained confident that the SEC has not been acting in good faith, and pointed to the fact that the SEC has declined to provide a viable path to registration or to list the tokens it believes to be securities.

Two weeks ago, Bittrex announced that it would leave the U.S. market by April 30 citing the current U.S. regulatory and economic environment.