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Coinbase, Kraken and others form Crypto Rating Council to help firms comply with SEC

Tue, 01 Oct 2019, 03:44 am UTC

Cryptocurrency exchange Coinbase introduced the Crypto Rating Council, an organization that aims to help traders comply with U.S. federal securities laws. The other founding members include Anchorage, Bittrex, Circle, DRW Cumberland, Genesis, Grayscale Investments, and Kraken.

As per its official statement, whether tokens is a security under U.S. laws will significantly impact “registration, licensing, and operating obligations for financial services firms that offer crypto services like exchange, investment management, or trading.”

Also, even though guidance has been issued by the U.S. Securities and Exchange Commission (SEC), crypto is still a legal minefield.

Thus, the Crypto Rating Council aims to issue a 1–5 rating for cryptocurrencies or token’s similarity to a security. A rating of 1 indicates a crypto-asset has only a few functional similarities to a security, whereas 5 means it is consistent with a security’s definition.

The result of the analysis is a score which makes it easy for members to synthesize the analysis across many tokens and make their own, independent business decisions about whether or how to support an asset,” the blog post read.

By far, the council has rated 20 crypto-assets. Bitcoin, the top cryptocurrency by market cap, got a score of 1. Meanwhile, Ripple’s XRP, maker (MKR), and polymath (POLY) garnered 4 or 4.5.

However, the announcement made clear that the point-based rating system is not investment advice and is based on previous SEC guidance and case law as well as the group member firms’ legal and technical experience.

We expect that some ratings will change over time and we will accept and consider feedback from asset issuers when they want to share additional information or clarifications that may impact an asset’s rating,” Coinbase said.

Currently, only tokens listed by the participating exchanges have been rated and disclosed, and crypto-assets that receive a score of 5 may never be released, CoinDesk reported citing The Blockchain Association’s Kristin Smith.

However, the statement was later clarified by Coinbase Chief Legal Officer Brian Brooks, saying “since a 5 star rating indicates that the asset can only be listed on a registered securities exchange or ATS, by definition those ratings wouldn’t be published because the relevant assets aren’t listed by any member.”

But this may change if council members receive approval to operate ATS platforms.

Coinbase revealed it is anticipating to add more members in the coming months, rate more assets, and release more and revised asset scores. It is also considering making similar tools for jurisdictions outside the U.S.

Just recently, Coinbase announced that it plans to support a range of new assets. Particularly, the exchange is considering adding support to assets that have not yet launched, such as Kadena, Nervos, Oasis, Solana, Spacemesh, and Telegram.

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