Okay, so we know it's bad obviously, due to the current market condition.
But what does it actually mean exactly?
Basically, when the value of the asset is depending on the work of a small set of people, these people need to register with the SEC to ensure that they are not rugpulling the project.
So the only real difference is that a security will get regulatory oversight, while a commodity won't.
You are free to buy any security you want, but those offering it, are legally required to tell you the truth and not to do anything that would risk your investment to go belly up.
So why exactly is this bad for crypto? Seems like regulation to protect shrimps from rug-pulls would be a good thing. Is it the track record of the SEC not really doing their job effectively? Or does it stifle development in some way?
For you to be able to make that decision as a trader, they need to be transparent and that transparency has to be ensured by regulators.
US firms who offer them need to register, to be allowed to offer that service to US customers.
US firms who run their own project, need to register to be allowed to operate in the US.
People tend to forget that the SEC is only responsible for the US of A, not for the entire world.
The SEC failing to do that with Stocks, pretending to be able to do it with crypto, is a whole different story though...