Information about this is contained in the response to a request from the SEC regarding the analysis of the investment company’s tokens in its crypto funds

Grayscale allows the classification of ZEC, ZEN, and XLM tokens as securities

29.08.2022 - 11:45

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3 min

What’s new? Digital asset management company Grayscale Investments has received requests from the US Securities and Exchange Commission (SEC) for additional analysis of Zcash (ZEC), Stellar (XLM), and Horizen (ZEN) tokens from its funds. In response, the company admitted that these cryptocurrencies “may currently be a security” or may in the future be recognized as a security by the SEC or a federal court, CoinDesk reports, citing Grayscale documents.

CoinDesk’s material

What else does the outlet report? Zcash Trust, Stellar Lumens Trust, and Horizen Trust collectively have about $40 million in assets out of about $18,7 billion managed by Grayscale. If the SEC determines that the listed cryptocurrencies are securities, Grayscale may have to terminate the associated funds, the documents say.

In the June 28 documents, where Grayscale first discloses information about legal regulation, the asset manager notes that “SEC staff has not provided any guidance as to the security status of” ZEN, ZEC, and XLM tokens.

This line is missing from the August 16 filings. Grayscale reportedly “received a memorandum regarding the status of ZEN, ZEC, and XLM under the federal securities laws from its external securities lawyers.” Details of the memorandum were not disclosed.

The possible inclusion of ZEC among the assets considered by the SEC as potential securities was commented on by crypto lawyer Gabriel Shapiro. According to him, if the regulator thinks that Zcash is a security, then any crypto asset could be recognized as such.

Grayscale Investments was founded in 2013. It allows US-accredited investors to buy cryptocurrency investment products in a regulated environment through traditional market instruments.

In June, Grayscale sued the SEC over its refusal to register a spot bitcoin ETF, claiming that the regulator violated the Securities Act. In July, Grayscale adjusted the composition of several crypto funds in line with the state of the market at the end of Q2. Digital Large Cap Fund, DeFi Fund, and Smart Contract Platform Select Ex Ethereum Fund (GSCPxE) underwent rebalancing.

Later, former SEC chief Jay Clayton called to reconsider the approach to crypto regulation. He said that the government should study and take advantage of the benefits of digital assets for the country’s financial system before imposing any restrictions.

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