Crypto Airdrops in Danger? SEC Faces Crackdown!

House Republicans Tom Emmer and Patrick McHenry are urging SEC Chair Gary Gensler to clarify how the Securities and Exchange Commission (SEC) classifies cryptocurrency airdrops. In a letter sent on September 17, they raised concerns about recent SEC legal actions that labeled airdrops as “unregistered securities.” They have asked Gensler to respond by September 30, explaining how these crypto giveaways fit into the SEC’s regulatory rules.

Here’s what you should expect next.

SEC’s Legal Actions Spark Concerns

The SEC’s handling of airdrops in lawsuits has raised red flags. In 2022, the agency sued Hydrogen Technology Corporation for market manipulation, claiming Hydro tokens distributed through airdrops were “unregistered securities.” In 2023, the SEC also accused Justin Sun and companies linked to BitTorrent of offering unregistered airdrops of BTT tokens.

These cases, mentioned by Emmer and McHenry, have sparked fears that the SEC is going too far in applying securities laws to crypto giveaways.

Innovation at Risk?

The lawmakers are particularly concerned that the SEC’s stance could hinder blockchain innovation and the growth of decentralized technologies. They argue that classifying airdrops as securities could prevent the technology from reaching its full potential. This approach could also have negative economic consequences, including reduced tax revenues and stifled job creation in the blockchain sector.

“We are concerned that misapplying securities laws could hinder the full potential of decentralization,”

Emmer and McHenry believe that preventing U.S. citizens from participating in airdrops could limit their ability to benefit from blockchain technology, which may have a broader impact on the U.S. economy.

Five Key Questions for Gensler

The letter includes five key questions for Gensler about how the SEC views airdrops. The lawmakers asked how cryptocurrency “given away for free” fits into the Howey test, which determines whether something is a security. They also questioned how the SEC differentiates airdrops from other types of rewards, like credit card points. Additionally, they asked if the SEC has studied the economic impact of its stance on airdrops.

They further inquired whether the SEC has considered how labeling airdrops as securities might affect blockchain applications, innovation, and the wider economy.

Rising Tensions with the SEC

This letter is the second time in a week that Republican lawmakers have criticized Gensler’s leadership. On September 10, GOP members questioned whether Gensler’s political affiliations had influenced SEC hiring, accusing him of favoring individuals from left-leaning organizations. These criticisms highlight growing tensions between Republican lawmakers and the SEC over its approach to crypto regulation.

What’s Next for Crypto Airdrops?

As the debate over crypto regulation heats up, Gensler’s responses to these questions could play a crucial role in shaping how airdrops are classified and how the U.S. handles cryptocurrency regulation. For now, the future of crypto airdrops remains uncertain as the SEC has yet to respond.

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With the SEC’s response pending, the future of crypto airdrops could either soar or stumble—stay tuned.