The ongoing discussion regarding the best way to classify cryptocurrency assets has taken on a new angle following the ruling in the SEC case against a former Coinbase employee for insider trading on March 1.

The SEC's investigation, which concerns people accused of insider trading rather than crypto companies themselves, added a special complexity to the already dismal regulatory environment around cryptocurrencies in the United States.

It was discovered that Ishan Wahi, a former Coinbase employee, had given his brother Nikhil Wahi and buddy Sameer Ramani, who is still at large, access to private information. The defendants, according to the SEC, traded unregistered securities on Coinbase, particularly obscure currencies like AMP and DDX.


Before a judge could decide whether or not the tokens were secure, Wahi and his brother reached settlements with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Judge Tana Lin of the US District Court for the Western District of Washington has defaulted on the case as a result of Ramani's absence, giving the case a new turn.

Even in secondary transactions, the ruling classified every cryptocurrency asset that Ramani traded on Coinbase as an investment contract.

The SEC's "Howey Test" has its roots in a 1946 Supreme Court case involving the sale of plots in citrus plantations. Four criteria are provided by this test to determine if a financial item qualifies as a security. Determining whether virtual money is genuinely securities or not is still a common task.

While Bitcoin has benefited from clear regulations since it was classified as a commodity in 2015, other cryptocurrencies are still unclear and represent genuine risks to centralized exchanges in terms of both law and regulation.

The U.S. SEC has stepped up its enforcement efforts against cryptocurrency companies, accusing them of issuing or selling unregistered securities, under the direction of chairpersons Jay Clayton and Gary Gensler. The regulator has recently placed sector heavyweights like Ripple, Binance, and Coinbase under scrutiny because there has been no discernible movement in the legislation pertaining to this issue.

Various viewpoints on the securities question have been expressed by U.S. Federal judges, contributing to an increase in regulatory ambiguity.

Judge Analisa Torres of the U.S. District Court for the Southern District of New York rendered a significant decision last year, holding that although secondary sales on exchanges did not qualify as unregistered securities, direct sales of Ripple's XRP cryptocurrency to institutional investors did. Judge Jed Rakoff, on the other hand, disapproved of this strategy, stating that a differentiation based on the mode of sale was inappropriate.

Lawsuits against Coinbase and Binance, two of the biggest cryptocurrency exchanges, highlight this complexity because they only address token trade on their platforms. The complex legal environment is made more suspenseful by the judges' pending decision on motions resulting from these conversations.