Coinbase-Led Crypto Ratings Council Draws Skepticism From Legal Experts

An initiative led by crypto exchanges to categorize digital assets has drawn mixed reactions from leading legal experts and industry players.

Coinbase, Kraken, Bittrex and a number of other exchanges announced Monday that they were forming the Crypto Rating Council (CRC) to clarify whether cryptocurrencies are securities. The CRC uses a 1-5 rating scale, with 1 being a clear non-security (bitcoin, litecoin, dai), and 5 being clear securities (none of which were disclosed publicly) – at least in the eyes of the consortium.

A number of assets fell somewhere between 1 and 5, including XRP, maker, EOS, augur and ethereum.

Reactions to the plan have ranged from welcoming to derisive. While some have expressed optimism about the CRC as a concept, others have criticized how the rollout has been handled and whether the body will really serve to sway the minds of regulators.

“I think this is a great idea,” said Gary Goldsholle, a partner at law firm Steptoe and Johnson, who previously served as the Deputy Director of the Division of Trading and Markets at the U.S. Securities and Exchange Commission (SEC). He told CoinDesk that the council’s framework could benefit smaller issuers and platforms that don’t have sufficient resources to conduct the scale of analysis that the SEC requires.

“I know firsthand how rigorously the SEC reviews a digital asset to ascertain whether it is a security,” said Goldsholle, adding:

“That might lead to a situation where certain platforms have more information about certain assets than others do, which leads to an un-level playing field.”

Coinbase, the exchange leading the CRC, did not respond to multiple requests for comment. But Coinbase chief legal officer Brian Brooks said on Twitter that the members are not providing legal advice.

“You can think of our efforts as the foundation for an automated compliance tool, of which there are many in the financial services world,” he wrote. He added that, while…

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