Are cryptocurrencies financial securities, like stocks?

Whether or not cryptocurrency is a hump security is a bit of a gray area right now. To back up a little, generally, a “security” in finance is anything that represents a value and can be traded. Stocks are securities because they represent ownership in a public company. Bonds are securities because they represent a debt owed to the bondholder. And both of these securities can be traded on public markets.

Regulators are increasingly starting to signal cryptocurrencies should be regulated similarly to other securities, such as stocks and bonds. But this take is receiving pushback; scholars, legal firms and some of the biggest players in the crypto industry have argued against this, claiming the rules that apply to stocks and bonds, for example, don’t apply as broadly to cryptocurrencies.

The Securities and Exchange Commission has set its sights on the sector generally. The agency has raised concerns about activities including crypto staking, and well as the operations of some large crypto companies.

Whether the SEC will treat cryptocurrencies, or specific types of cryptocurrencies, as securities will be at the forefront of crypto regulation, and could have major implications for the asset class in the near future.

Pros and cons of cryptocurrency
Cryptocurrency inspires passionate opinions across the spectrum of investors. Here are a few reasons that some people believe it is a transformational technology, while others worry it’s a fad.

Cryptocurrency pros
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation.

In communities that have been underserved by the traditional financial system, some people see cryptocurrencies as a promising foothold. Pew Research Center data from 2021 found that Asian, Black and Hispanic people “are more likely than White adults to say they have ever invested in, traded or used a cryptocurrency

Other advocates like the blockchain technology behind cryptocurrencies, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.

Some cryptocurrencies offer their owners the opportunity to earn passive income through a process called staking. Crypto staking involves using your cryptocurrencies to help verify transactions on a blockchain protocol. Though staking has its risks, it can allow you to grow your crypto holdings without buying more.

Cryptocurrency cons
Many cryptocurrency projects are untested, and blockchain technology in general has yet to gain wide adoption. If the underlying idea behind cryptocurrency does not reach its potential, long-term investors may never see the returns they hoped for.

For shorter-term crypto investors, there are other risks. Its prices tend to change rapidly, and while that means that many people have made money quickly by buying in at the right time, many others have lost money by doing so just before a crypto crash.

Those wild shifts in value may also cut against the basic ideas behind the projects that cryptocurrencies were created to support. For example, people may be less likely to use Bitcoin as a payment system if they are not sure what it will be worth the next day.

The environmental impact of Bitcoin and other projects that use similar mining protocols is significant. A comparison by the University of Cambridge, for instance, said worldwide Bitcoin mining consumes more than twice as much power as all U.S. residential lighting

Some cryptocurrencies use different technology that demands less energy

Governments around the world have not yet fully reckoned with how to handle cryptocurrency, so regulatory changes and crackdowns have the potential to affect the market in unpredictable ways.