SEC Deems Filecoin Token A Security, But Grayscale Doesn't Agree

Crypto investment firm Grayscale Investments has said it doesn't agree with the U.S. Securities and Exchange Commission's (SEC) stand that Filecoin's FIL token is a security.

"Grayscale received a comment letter from the SEC staff stating its view that the Trust's underlying asset, FIL, meets the definition of a security under the federal securities law," the Connecticut-based digital assets management firm said in a press release Wednesday.

Grayscale launched the Grayscale Filecoin Trust early in 2021, which gives investors indirect exposure to FIL token, reported Decrypt. It voluntarily filed Form 10 with the SEC, which would have made the trust more like a public company that files quarterly reports on its financial activity.

The SEC has now asked Grayscale to withdraw its trust registration, saying FIL is an unregistered security.

The crypto firm said it will explain to the securities regulator why it doesn't agree with the designation.

"Grayscale does not believe that FIL is a security under the federal securities laws and intends to respond promptly to the SEC staff with an explanation of the legal basis for Grayscale's position," the company said.

The FIL token's price dropped nearly 3% Wednesday after the SEC asked Grayscale to withdraw it application.

Filecoin is a platform that allows users to pay using the FIL tokens so their data can be stored with providers.

The recent developments further raised questions about the SEC's regulatory processes for digital assets.

SEC Chair Gary Gensler had previously said "everything else other than Bitcoin" is a security. However, the SEC is yet to provide clarity regarding questions about which specific assets are securities.

Last year, cryptocurrency exchange Coinbase filed a petition asking the commission to "propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities."

The regulator responded to the request earlier this week, telling an appeals court that the exchange hadn't proven the SEC needed to establish new regulations specifically for the digital asset sector.

Before that, the U.S. Chamber of Commerce filed an amicus brief that called out the regulator for making the crypto exchange wait long. The SEC's "continued refusal to resolve Coinbase's rulemaking petition" was "causing substantial economic harm to both Coinbase and the broader business community," the chamber said.