Crypto Firms Band Together to Classify Which Assets Are Securities 

crypto ratings council

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The classification of cryptocurrencies, especially those which can be used as investment products, has always been a topic of discussion. However, certain companies in the crypto space seem to be ready to bring more clarity to this issue. 

Earlier today, finance news medium the Wall Street Journal reported that several U.S. based crypto firms, including cryptocurrency exchanges Kraken and Coinbase, have collaborated to develop a rating system that will identify which crypto asset can be classified as securities. 

Crypto Ratings Council

Amongst other things, this development could provide clarity concerning the type of tokens which can be traded without requiring the supervision of traditional financial regulators. However, it could also help guide cryptocurrency developers in the future, especially with listing their assets, providing use cases, and raising funds through Initial Coin offerings (ICO). 

As the Journal reports, these firms will come together to form the Crypto Ratings Council. The group is expected to launch officially on September 30, and it will be publishing its online ratings for digital assets on a scale of 1 to 5; a token which earns the highest value is essential to be considered a security and thus can’t be traded, sold, or issues by unregulated firms.

However, if the report holds, then Bitcoin will be considered a “1.” The rating system was reportedly conceived by Brian Brooks, the Chief Legal Officer at Coinbase. On the development, he pointed out that the question of token classification has led several asset managers to be uncomfortable. 

Mary Beth Buchanan, the General Counsel at Kraken, also touted the council and rating system as a possible solution that will help the U.S. Securities and Exchange Commission (SEC) and other regulators that crypto companies are also committed to helping bring clarity to the classifications of crypto assets. 

The report noted that other members of the group (which has been dubbed the Crypto Ratings Council) include crypto exchange Bittrex, Circle Internet Financial, the Cumberland unit of DRW Holdings, Anchor Labs, as well as crypto investment and stock trading firms Grayscale Investments and Genesis Global Trading. 

However, as the report notes, the group is still working on recruiting more reputable crypto organizations as members as well. 

The ramifications surrounding the new rating system

There really is no telling how much this initiative could help. Of course, the acceptance of the new rating system will depend on several factors, and knowledgeable members of the crypto community will need to examine how the system works to ascertain whether it can hold up.  

If successful, however, the initiative could also bring an end to several legal issues; including and especially the one involving the SEC and Canadian social media giant Kik over whether the latter’s KIN token qualifies as a security or not. 

However, it would also depend on whether regulators themselves are willing to accept help from crypto companies over a task which, ideally, is their responsibility. Regulators might not be particularly willing to play well with others, but we will eventually see. 

If regulators won’t get a move on with bringing this clarification, then it really is up to crypto firms to pick up the slack. 

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About Jimmy Aki

Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.