Cardano Just Caught a Major Break From the SEC. Is It a Buy With $500 Right Now?

On March 17, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) officially classified Cardano (CRYPTO: ADA) as a "digital commodity," thereby confirming it is not considered as a security under federal law. That's a real win because it clarifies the coin's legal status such that players with a lot of capital might be willing to invest in it or participate in its ecosystem.

But 15 other cryptocurrencies got the same classification as Cardano did at the same time. So does this new regulatory guidance mean that Cardano is de-risked enough to justify a $500 investment, or is it still in a questionable competitive position?

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What the new regulations do for Cardano

Cardano benefits substantially from a few specific provisions within the new rules.

First, before the SEC and CFTC's update, any staking service that pooled user funds and offered a yield (which is to say, potentially most of those services) could plausibly have been called a securities offering. The regulatory burden for those offerings is onerous, and failing to file the correct paperwork can result in legal problems. So, the ambiguity depressed institutional participation in staking significantly.

Now, Cardano could see an influx of new capital from previously discouraged users seeking a yield. Cardano's staking model features no lock-up period, unlike many of its competitors, so capital can flow in and be staked -- as well as flow out -- with fewer barriers. Yields run between 2% and 4.5% annually, which usually puts it slightly on the low side compared with other major chains, so there's still not much reason to expect that capital will linger on Cardano.

In other words, the regulatory clarity thus legitimizes a use case Cardano already had, but the competitive edge it confers is zero.

Nonetheless, the regulations also changed the treatment of airdrops, which are distributions of tokens to holders or other people who fulfill certain criteria. Now, the airdrops themselves aren't considered securities offerings under most normal conditions. So if the projects in Cardano's ecosystem have enough spare capital to disburse via airdrops, they might be able to use the promise of those payments to entice more users and grow faster.

The competitive gap hasn't closed

One of the main problems with Cardano is that it doesn't have any advantages that make its chain a better place to do business compared to the competition. That problem is still in full force despite the new guidelines.

Cardano's total value locked (TVL) in decentralized finance, which is to say the amount of capital deployed in its ecosystem, is $135 million. Solana's is roughly $6.8 billion and Ethereum's exceeds $55 billion. Under the best case imaginable, Cardano will still be lagging very badly behind its most valuable peers, both of which will be able to squeeze more mileage out of the regulatory changes simply by virtue of being home to vastly larger pools of capital.

So there's no rush to invest $500 in Cardano here. Its playing field is now clearer, but the cleared obstacles were more troublesome for other assets anyway.

Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.