3 Cryptos to Sell as Regulatory Concerns Mount

The Securities and Exchange Commission (SEC) recently approved exchange-traded funds (ETFs) for Bitcoin (BTC-USD). This long-awaited move has given traders reason for optimism about regulation in the digital asset space. But it’s far from an all-clear for the category. In fact, for these three cryptocurrencies to sell, grave regulatory concerns remain despite the recent ETF ruling.

Ripple (XRP-USD)

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Ripple (XRP-USD) has become a focal point in the struggle between cryptocurrencies and regulators. The cryptocurrency operates a payments network which allows for remittances, settlement and currency exchange globally.

The SEC took aim at Ripple starting in 2020 by arguing that the crypto is a security, not a commodity. As such, Ripple would have to get SEC approval to raise funds from the general public.

In 2023, a court delivered a mixed ruling, stating that XRP tokens themselves were not inherently a security but that the sales of them to institutions or for the purpose of raising funds could constitute a security offering and thus fall under the SEC’s oversight.

The SEC is continuing its enforcement action. It has demanded more financial statements and transparency from Ripple, which the firm is fighting against. It remains to be seen how this will ultimately play out, legally speaking. However, for a company wanting to operate a payments network which requires user trust, it will be difficult to gain widespread adoption until this SEC matter is resolved.

Binance Coin (BNB-USD)

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One of the more promising opportunities in the crypto market has been investing in the coins and tokens backed by the exchanges. Trading is a big piece of the crypto ecosystem, so the exchanges that profit from this activity are one of the largest profit centers out there in the digital asset space.

But not all of these exchanges are necessarily at the same level of credibility — like Binance and its Binance Coin (BNB-USD). BNB skyrocketed from $40 to a peak of more than $600 in 2021 amid a surge in trading activity and a strong bull market in the crypto space.

Since then, BNB has become one of the cryptocurrencies to sell and has lost about half of its value amidst mounting concerns. In November 2023, Binance agreed to pay a $4.3 billion settlement as compensation for breaking U.S. anti-money laundering laws including allowing transactions to support terrorist groups such as Hamas. As part of that deal, Binance’s former head Changpeng Zhao paid $50 million personally and resigned from the exchange.

However, the SEC didn’t stop there. It is now going after Binance for allegedly inflating trading volumes, diverting customer funds and misleading customers about oversight features in the platform among other allegations. Aside from the potential fines and enforcement actions, these lawsuits are damaging to Binance’s brand and are likely to drive possible customers away.

Tether (USDT-USD)

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Tether (USDT-USD) is a large digital stablecoin. Rather than intending to go up in value, Tether exists as an intermediary that allows traders to hold cash in a token that is pegged at a one-to-one ratio with the U.S. Dollar. This allows people to park money in a stable unit while waiting for trading opportunities to emerge in the crypto space.

The issue with Tether, however, is that there are credibility questions around the institution. That comes in large part because Tether is closely linked to Binance, which has run into major regulatory issues as described above. Some reports have suggested that Tether will be next on the list of cryptocurrencies to sell following the Binance action, as Tether was reportedly used to fund a variety of terrorist and other illegal activities.

This isn’t Tether’s first run-in with U.S. regulators, either. In 2021, New York Attorney General Letitia James ordered that Tether and partner Bitfinex stop facilitating transactions in the state of New York after it illegally overstated its reserves and hid losses on its trading operations.

The purpose of a stable coin is simply to preserve value at a rate pegged to the U.S. Dollar. If a stablecoin operator has run afoul of regulators and has major credibility questions around its reserves, that makes it a dubious place to park ones funds.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.