Crypto freedom on the chopping block? eToro’s SEC deal raises alarms

Could eToro’s settlement with the SEC be the beginning of a major shift in how crypto assets are regulated? Will other platforms face similar crackdowns in the near future?

SEC strikes, eToro settles

eToro, an Israel-based global crypto trading platform, has found itself caught in a regulatory shake-up. Known for offering a variety of assets like stocks and cryptocurrencies, the company recently agreed to a settlement with the U.S. Securities and Exchange Commission.

The SEC claims that eToro allowed U.S. customers to trade certain crypto assets without registering them as securities, a violation of federal law, according to the regulator. 

As part of the settlement, eToro will pay a $1.5 million penalty. More critically for its U.S. users, the platform will stop offering most cryptocurrencies. 

Moving forward, only Bitcoin (BTC), Bitcoin Cash (BCH), and Ethereum (ETH) will remain available for trading. Users will have 180 days to sell off any other crypto holdings.

This settlement marks a turning point for crypto traders in the U.S., particularly those who relied on eToro to trade a wide range of crypto assets. 

While eToro neither admitted nor denied the SEC’s charges, CEO Yoni Assia conveyed the company’s commitment to working with regulators to ensure compliance.

This development raises a key question: could this be the start of a broader crackdown on crypto platforms, given the SEC’s recent actions?

SEC’s crypto crackdown

Under the leadership of Chair Gary Gensler, the SEC has ramped up its scrutiny of the crypto world, launching one case after another against companies in the space. 

Gensler, who took over in early 2021, has made it clear that he believes most cryptocurrencies are actually securities. And that’s where the trouble begins.

Since the collapse of major players like Terraform Labs and FTX in 2022, the SEC has become even more aggressive in its approach. 

From centralized exchanges like Coinbase, Binance, Kraken, and Robinhood to decentralized finance projects and now even NFTs, almost no corner of the crypto industry has been left untouched.

Take OpenSea, the largest NFT marketplace, for example. On Aug. 28, it received a Wells notice from the SEC, which is essentially a formal warning that the agency is considering taking enforcement action. 

The SEC believes that some NFTs sold on the platform might actually be securities. If the SEC follows through, it could mean big changes for how NFTs are traded and viewed in the U.S. 

OpenSea isn’t the only platform on the SEC’s radar. Back in April, Uniswap (UNI), a decentralized exchange, was also hit with a Wells notice. 

Like eToro, the SEC alleged that Uniswap was acting as an unregistered broker. If these projects are forced to change how they operate, it could send shockwaves across the crypto space, impacting how people trade and invest in decentralized tokens.

Some industry insiders believe these actions are part of a broader government strategy dubbed “Operation Choke Point 2.0.” 

The idea behind it is that the U.S. government is trying to cut off the crypto industry’s access to traditional banking services, making it harder for companies to operate. 

At the heart of the SEC’s enforcement efforts is the question of how crypto should be regulated. Gensler has been firm in his stance that most cryptos are securities, meaning they should be subject to the same rules as stocks and bonds. 

One notable exception, however, is Bitcoin. Previous regulators agreed that Bitcoin is decentralized enough to avoid being classified as a security and is instead deemed a commodity.

Ethereum, meanwhile, has gained more clarity in recent months. While it has long existed in a gray area, the approval of spot Ethereum ETFs in July 2024 further cements its status as not a security. 

Additionally, eToro’s decision to continue offering Ethereum to U.S. users, alongside Bitcoin and Bitcoin Cash, aligns with this view, signaling that the SEC may be warming to Ethereum’s regulatory status.

Experts reactions and public outcry

The news of eToro’s settlement with the SEC has sparked widespread discussions. From legal experts to everyday crypto fans, everyone has an opinion on what this means for the future of crypto in the U.S.

Drew Hinkes, a professor at New York University Stern and an expert in crypto law, expressed a mixture of concern and confusion over the SEC’s handling of the case. 

According to him, the settlement left several key questions unanswered. In particular, Hinkes pointed out that the SEC failed to specify which of the digital assets offered by eToro were considered securities.

“We continue to guess which assets the SEC thinks are and are not ‘securities,'” he remarked, highlighting the uncertainty this creates for the market. This ambiguity leaves token projects that were once listed on eToro in what he called “regulatory purgatory.”

Hinkes also touched on an important contradiction in the settlement. While the SEC ruled that eToro violated securities laws, it did not provide a clear path forward for companies looking to comply.

“The SEC is not helping market actors,” he noted, referring to the absence of specific guidelines on how firms should navigate compliance with securities laws. 

Instead, the settlement stipulates that eToro must sell the tokens on behalf of users in a manner approved by the SEC—a move that raises more questions than it answers about how the agency will handle such cases in the future.

Bill Hughes, a lawyer at Consensys, took a more pragmatic stance, pointing out that the $1.5 million penalty was small compared to the size of eToro’s U.S. user base. 

According to Hughes, eToro had around 240,000 U.S. customer accounts, a drop in the bucket compared to Coinbase’s 100 million users. He framed the settlement as more of a “departure fee” than a heavy-handed punishment.

The settlement has also sparked heated reactions from the crypto community. Many retail investors and crypto enthusiasts feel that the SEC’s enforcement actions are stifling innovation rather than protecting consumers. 

One X user bluntly accused the SEC of harming the very people it claims to protect. “You have protected nobody. You have reduced the access of retail customers. Attacked a legitimate U.S. company,” he tweeted, expressing frustration at what he saw as the agency’s overreach.

Similar sentiments echoed across social media, with another user arguing that the SEC’s approach makes it impossible for companies to come into compliance because the regulatory framework is unclear.

While the settlement with eToro is just the latest in a series of enforcement actions, it raises concerns about how the SEC plans to regulate the crypto industry going forward. 

With OpenSea and Uniswap also receiving Wells notices, it’s clear that the SEC is not done with its crackdown on crypto projects. But whether this will lead to clearer rules or simply drive innovation offshore remains an open question.