eToro to Cut Almost All Cryptos for US Users in Latest $1.5 Million SEC Settlement

eToro’s Cryptocurrency Offering Faces Major Overhaul Following SEC Settlement

The U.S. Securities and Exchange Commission (SEC) has reached a significant settlement with retail trading platform eToro, marking a pivotal moment in the ongoing regulatory scrutiny of cryptocurrency exchanges.

As part of the settlement, eToro will halt the trading of nearly all cryptocurrencies for its U.S. customers.

The platform, which has been under investigation for operating as an unregistered broker and clearing agency, will pay a $1.5 million penalty to resolve these charges.

The SEC's action reflects its broader campaign to enforce registration requirements on crypto platforms, further complicating the landscape for digital asset trading.

Focus on Bitcoin and Ethereum: The SEC’s Regulatory Shift

Under the terms of the settlement, eToro is permitted to offer only a limited selection of cryptocurrencies to its U.S. users: Bitcoin, Bitcoin Cash, and Ethereum.

This shift highlights a notable regulatory stance by the SEC, especially regarding Ethereum, the second-largest cryptocurrency by market capitalisation.

The decision to allow Ethereum on the platform could signal a significant concession from the SEC, which has previously wavered on whether Ethereum should be classified as a security.

This development is notable, considering the SEC's past reluctance to clearly define Ethereum’s status amidst ongoing legal battles.

eToro’s Strategic Response to Regulatory Pressure

Yoni Assia, eToro’s co-founder and CEO, articulated that the settlement aligns with the company’s commitment to compliance while enabling it to concentrate on innovative and relevant products across its diversified U.S. business.

Assia said,

“As an early adopter and global pioneer of cryptoassets as well as a significant player in regulated securities, it is important for us to be compliant and to work closely with regulators around the world,”

He emphasised that the settlement would minimally impact eToro’s global operations, given that the platform serves over 38 million users across more than 75 countries.

International users will still have access to over 100 crypto assets, reflecting the platform’s continued expansion and resilience despite the regulatory challenges.

Implications for the Crypto Industry and Future Regulatory Landscape

The SEC’s decision to fine eToro and restrict its U.S. cryptocurrency offerings aligns with its broader enforcement strategy under Chairman Gary Gensler.

Gensler has championed the view that most cryptocurrencies should be regulated as securities, similar to traditional financial instruments like stocks and bonds.

This perspective is part of a wider crackdown that has seen the SEC engage in legal battles with major crypto platforms such as Coinbase, Binance, and Kraken, all of which dispute the notion that digital assets should fall under the securities regulation framework.

The settlement with eToro, while a significant step, is part of a complex regulatory environment that continues to evolve.

The SEC’s approach has often sparked debate, particularly concerning which assets should be classified as securities.

This ongoing uncertainty highlights the challenges faced by crypto firms navigating the regulatory landscape, as they balance compliance with the desire to innovate and expand.

Enforcement Actions and Broader Impacts on the Crypto Ecosystem

The SEC’s enforcement actions against eToro and other crypto entities come amidst broader concerns about the crypto sector’s illicit reputation and its impact on investor protection.

Reports indicate a rise in financial fraud related to cryptocurrencies, with the FBI noting that crypto-related complaints constituted 10% of all financial fraud complaints last year, leading to $5.6 billion in losses.

Furthermore, the FTC highlighted a substantial increase in losses from scams involving bitcoin ATMs, with figures climbing to $114 million last year.

This context of heightened scrutiny and regulatory pressure reflects the broader challenges faced by the cryptocurrency industry as it seeks to establish itself within a framework of evolving legal and financial standards.

As the SEC continues to refine its approach, the industry must adapt to these regulatory developments while striving to maintain investor confidence and operational viability.