Grayscale Investments has been asked by the United States Securities and Exchange Commission (SEC) to withdraw its application for a Filecoin Trust product, as the regulator believes that the underlying asset, Filecoin (FIL), can be considered a security. Grayscale had submitted a Form 10 application on April 14 for the updated Filecoin Trust product, which would allow it to file quarterly reports on its financial activity and become more like a public company. However, on May 16, the SEC warned Grayscale that FIL met the definition of a security under federal law, leading to the request to withdraw the application.
Grayscale Responds to SEC
Grayscale has stated that it does not believe that Filecoin is a security and will be sending an explanation to the SEC outlining its position. The company has warned that it does not know whether this explanation will be accepted and may seek accommodations for the registration of the trust or dissolve it entirely. Grayscale’s Filecoin Trust was launched in March 2021, alongside other offerings for Chainlink and Decentraland.
SEC Crackdown on Crypto Products Continues
The SEC’s request to Grayscale is part of a wider crackdown on crypto products, with the regulator recently taking action against several US-based crypto exchanges. In February, Kraken was fined for selling unregistered securities, while in March, Coinbase received a legal notice for potential violations of securities laws. The price of FIL fell briefly before recovering and is currently trading at $4.53, according to CoinGecko data.
Overall, the SEC’s request to Grayscale has highlighted the ongoing challenge of regulating cryptocurrencies and their associated products. As the market continues to evolve and new products are launched, regulators will need to balance the need to protect investors with the desire to foster innovation and growth in the sector.