eToro reached a $1.5M settlement with the SEC. Other brokerages could be next.

By Gordon Gottsegen

The brokerage decided to settle a lawsuit that challenged how crypto was traded on its platform

Online brokerage eToro just agreed to pay $1.5 million in a lawsuit with the Securities and Exchange Commission that could affect how people trade crypto in the future.

The SEC alleged that eToro was acting as an unregistered broker and an unregistered clearing agency in connection to its crypto-trading platform.

The crux of the lawsuit had to do with whether crypto assets should be treated as securities or not. The SEC believes that they should be, and thus wants to ensure that they are registered and regulated. However, this poses a challenge for the many online brokerages that have been offering crypto trading on their platforms for years - including eToro, Robinhood (HOOD) and others.

Read more: Robinhood's SEC battle asks if crypto is a security. The answer could change how we trade.

In addition to paying the $1.5 million, eToro agreed to only allow its U.S. users to trade three different crypto assets: bitcoin (BTCUSD), bitcoin cash (BCHUSD) and ether (ETHUSD). Users on the platform will have 180 days to liquidate their other crypto positions on the platform, or they can move the assets to a crypto wallet.

"By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework. This resolution not only enhances investor protection, but also offers a pathway for other crypto intermediaries," Gurbir S. Grewal, director of the SEC's division of enforcement, said in a statement.

It's worth noting that this will only affect eToro's U.S. customers. Outside of the U.S., eToro customers won't be subject to the same limitations.

"As a company serving over 38 million registered users from more than 75 countries, the terms of the settlement will have a minimal impact on our global business. Outside of the United States, eToro users will continue to enjoy access to over 100 crypto assets," Yoni Assia, eToro's co-founder and chief executive, said in emailed comments.

"We now have a clear regulatory framework for crypto assets in our home markets of the U.K. and Europe and we believe we will see similar in the U.S. in the near future. Once this is in place, we will look to enable trading in the crypto assets that meet this framework," Assia continued.

While eToro looks to navigate these regulatory hurdles, other brokerages may have to figure out how to stay compliant, too. The SEC has also investigated Robinhood's crypto-trading business, as well as crypto exchanges like Binance. These lawsuits may lead to similar outcomes like the eToro settlement, where retail investors only have access to a handful of crypto assets on their favorite trading platforms.

-Gordon Gottsegen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-12-24 1246ET

Copyright (c) 2024 Dow Jones & Company, Inc.