I don’t think the “crypto isn’t a security” argument is going very far. The SEC has a very loose definition of a security - vaguely, something you buy with the expectation to make money from it appreciating - that is meant to capture unforeseen cases exactly like crypto.
A single quote from someone isn’t changing years and millions of pieces of evidence of people using and promoting crypto almost entirely as a security by this definition.
It’s not the SEC’s definition, it’s the supreme court’s:
If:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
Coinbase claims that none of the crypto assets it lists meet that test. For the coins Coinbase lists:
- Criteria #2 is debatable
- They don't meet criteria #3
- Or they don't meet criteria #4
Lots of coins look like commodities. They represent a digital asset, not ownership in a common enterprise or a loan. CFTC officials have said as much, as Coinbase quoted: "the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil…or crypto assets." - Then-CFTC Commissioner Quintenz
Coinbase believes that all of the tokens they list are securities. The SEC needs to tell Coinbase specifically what it believes they are doing wrong - it will have to eventually, if it files suit.
It feels like a lot of people have knee-jerk crypto=bad reactions. But read their press release - it really sounds like Coinbase is trying their best to comply with U.S. regulation, and the regulators aren't doing their jobs.
And last - For digital assets that do look like securities, the SEC provides no way to register them, and thus vaguely implies that Americans can't own digital securities. That's not their decision to make - they either have to do their job and regulate crypto securities, or get congress to ban them.
Edit: arcticbull pointed out that many digital assets do seem like securities (ICOs). Updated this comment with Coinbase's claim that they don't list any tokens that resemble securities
> SEC: Check out 'Framework for “Investment Contract” Analysis of Digital Assets' [1]
> Crypto folks: NOT LIKE THAT.
The regulators have been super clear, the crypto folks just don't like what they're seeing. They saw people who didn't ask make money, and people who did ask get shut down. So they didn't ask. But the noble ostrich is only able to keep their head in the sand for so long.
That guidance is about ICOs that are investment contracts. Lots of tokens appear to meet the definition of an investment contract, but not everything called an ICO is an investment contract. The whole point of that guidance is to help people issuing an ICO to determine what's an investment contract.
But Coinbase doesn't host any ICOs, and they reject ICO tokens that look like securities! Here is Coinbase's guidance to its users on that point:
They say as much in their press release, if anyone would read it:
"Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange... This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance and information security aspects of the asset. 90%+ of assets that we review are not ultimately listed on Coinbase because they do not meet these standards."
Coinbase says they don't list digital assets that could be considered securities! Everyone's hand-waving that Coinbase has obviously done something wrong, but no-one can point out specifically what. There's a disagreement on fact here - either the SEC tells Coinbase what it's doing wrong, and they can comply, or they don't and it gets settled by a court.
Edit: Updated the comment since articbull rightly pointed out that Coinbase does list some tokens that were originally issued in ICOs.
> But Coinbase doesn't host any ICOs! And they reject ICO tokens!
Sorting Coinbase token pairs alphabetically I only had to get as far as AAVE.
> The firm, originally named ETHLend, raised $16.2 million in an initial coin offering (ICO) in 2017, during which time it sold 1 billion units of its AAVE cryptocurrency - originally named LEND. [1]
Coinbase doesn't publish their standards or approaches, and frankly, it's very much in their interests not to declare something a security. I suspect their process is less than rigorous.
> Coinbase doesn't list digital assets that could be considered securities! Someone needs to actually point to what they're doing wrong.
I believe I linked to the document above :) maybe their lawyers would like to give 'er a skim?
Coinbase's position is that that ICO was not an investment contract. Not everything called an ICO is an invetment contract - the point of that SEC page is to provide guidance on when an ICO is an investment contract. Coinbase's lawyers have certainly given that document a skim, they reference it here where they talk about securities law:
There is a disagreement of fact - Coinbase says they don't list any securities, and the SEC claims they do and are violating securities law, without providing any specifics. Assuming the SEC goes forward, a court will have to decide.
"an enterprise in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those offering or selling the investment or of third parties."
Every coin meets #3, because without exchanges, you can't make profit.
> Or they don't meet criteria #4
Coins are speculative in nature. Without promotion, you can't find new investors. If you don't have new investors, the price can't go up.
Cryptocurrency is money, you can send them no questions asked, without begging fiat gatekeepers to let the transaction through mining the hell out of your personal information, your clothes, your boots and your motorcycle.
To purchase the coins you need to use an exchange. To sell the coins you need an exchange. Cryptocurrency isn't usable without fiat, and it's value is based on fiat.
Unless you're using very specific coins (which aren't allowed on most exchanges), your transaction history is public to the world, which is worse from a privacy perspective than fiat. If you really used coins as your primary currency, it would be pretty trivial to obtain your identity from your transaction history.
So, I am not saying the crypto community (or Coinbase) is right or wrong here. But it's not as clear-cut as OP makes it out.
While Howey's test is well-known, each crypto asset can be argued to pass or fail for different reasons:
1. The biggest issue is what constitutes a "common enterprise"? Most federal courts (but not all) have defined it as a horizontal structure where assets are pooled. (https://core.ac.uk/download/pdf/159597203.pdf) Coinbase can argue that a straight purchase of a crypto token has no "common enterprise" because there is no pooling of assets.
2. It's not trivial to prove that profit for a given crypto token comes from the "efforts of the promoter or third party." Who even is the promoter of a distributed token? What identifiable third party's efforts is the profit in the crypto sale even dependent on?
3. Finally, is there always an expectation of profit? How is buying a vanity NFT different from purchasing a vanity domain that I do not use? What about a vanity NFT avatar I want to show off on Twitter / Reddit / Telegram?
It's a complex case with lots of nuances. Whichever way courts rule - it will set new precedents.
What we have here is different from the allegations that the SEC has made against other crypto entities, which were mostly about mixing consumers' assets, insider trading, improper disclosures during promotions or even straight-up money laundering.
Those cases were not going to set new case law. This case will.
Staking is a pooling of assets. A coin is a commodity, a stake in a currency is a security. An iPhone is a commodity, a stake in Apple (shares of their stock, corporate bonds, etc.) is a security.
I think you forgot a prong in the Howey test. "With the expectation of profit from the effort of others."
There are various forms of staking, if it requires running your own validator the expectation of profit is derived from your own effort. Therefore not a security.
Yes, but the statement you make above is in general for staking. Not staking as offered by Coinbase. My comment above clarifies that the specific details of how the staking is implemented matter, at least with respect to Security's law.
My non-lawyer interpretation is that, indeed, centralized staking offerings like Coinbase seem to fit the Howey test criteria and are at risk of being deemed a security offering. But not all staking is.
There is a broad array of explicit exemptions from the Securities Act of 1932. Municipal bonds, for example, are not regulated by the SEC because they are explicitly exempted.
Interest bearing bank acceptances or commercial paper with maturities less than 180 days or 270 days respectively are also explicitly exempt. Since coinbase’s offering has no maturity date, and money can be withdrawn at will, my guess is that they are trying to argue that this is an exempt security. TBF, I don’t see much difference between this and a foreign-denominated interest bearing bank account.
There’s a lot of crypto==bad posting going on, and I generally agree with the crypto==bad crowd, but this is hardly a clear matter and likely needs to be taken to court to resolve. The SEC has a long history of turf wars with other regulatory agencies and regulatory overreach beyond their congressional authorization. They have lost 4 out of their last 5 Supreme Court cases related to cryptocurrency. I wouldn’t be surprised if their refusal to clarify is because they know they wouldn’t prevail in court and are trying to get away with setting precedent in the court of public opinion. It certainly looks like it’s working, judging by the opinions in this thread.
Current SEC's position seems to be mostly political posturing by Gary Gensler, and not necessarily based on technical or regulatory merits. There is strong dissent within the SEC with its most recent actions. Most notably by Hester Peirce, one of the 5 SEC commissioners. Something smells afoul at the top of the SEC.
Forex is not a security because it’s not an investment in an enterprise but an exchange of like for like of legal tender. Otherwise the money changers at airports would be regulated by the SEC and they would have to register their currency exchange, and any international transaction would have to be disclosed and regulated by the sec in literally every single case. Plus the SEC has no authority either of the treasury of the US nor any other governments treasury.
A currency being legal tender presumably has little bearing on whether the U.S. would consider it a currency. Some countries don‘t even have the concept of legal tender, while others recognize currencies they don’t issue themselves.
Being issued by a sovereign state would probably be a better test.
> Being issued by a sovereign state would probably be a better test.
Aha, so they just need another layer of indirection.
Acting on the imprimatur of the country's central bank, programmatically issue a sovereign CBDC upon the deposit of BTC. Keep cryptographic proof of 100% BTC reserves at all times to provide ultimate credibility for your (potentially parallel) currency (so you can keep using dollars or pesos or whatever in your real economy). Allow intra-CBDC transfers for 0.1% fee and programmatic redemptions for BTC for 0.2%. Profit.
The economic definition of "legal tender" is sometimes obscured in casual conversation.
It isn't "issued by a sovereign state" - that's "fiat" but rather "used for paying taxes." And sometimes, like in the US, debts ("all debts foreign and domestic").
Certainly it has to vary among countries of which I am ignorant, but generally in the Anglosphere it is debts, not payments, that trigger the definition of "legal tender."
Feels like the answer to these questions is just gonna be “maybe such a case in the future will make it to the courts, and the courts will have to come up with an interpretation here.” We can make guesses about what the courts will decide but how confident are we in our guesses?
its already the case with el salvador and bitcoin. bitcoin wasn't really under question though for being a security so would need someone to make a smaller token legal tender
> Not disputing this, but does that mean buying forex is a security, and if not, what stops it being?.
I’m not sure the rationale (or if it is just an explicit designation), but forex (and some related derivatives) is commodity trading regulated by the CFTC rather than security trading regulated by the SEC. (I think a regulatory problem with cryptocurrency is that it is generally clearly one or the other, but not always clear which, and while the market would like crypto to be one category it is probably a messy split between the two, absent legislation defining it and assigning it as a category.)
Seems like a fairly clear line can be drawn unambiguously.
If it’s, like Bitcoin, just a number in a ledger, it’s a commodity.
As soon as you attach any specific data to it, like a smart contract or tieing it to a single, tangible object like a painting, or paying rewards to people who bought before a specified time, it’s no longer fungible. It isn’t a commodity.
There is nothing to rebut. Your argument has nothing to do with Security's laws or the legal jurisprudence around it. It can be substituted by "if it starts with B like Bitcoin, it's not a Security" which contains exactly the same amount of argumentative power.
It takes significantly more time to construct a rebuttal than to produce a gish gallop of senseless arguments like the one above. So I will simply refer you to this link: https://isethereumasecurity.com/
If you just exchange usd for euro that’s not an expectation of profit per se. And no one is taxed for this action.
If you’re a day trader of forex usually at the end of the day you would settle back into your default currency. Your gains from this is taxed. But usually when doing this you’re buying derivative products that are explicitly securities with maturity dates.
I agree if it’s part of your investment portfolio. The profit part comes when you cash it back into your default currency in order to use it or to realize the gains.
If you bought btc, used it to buy goods, and never cashed it back to usd then I think it is a currency.
You realize gains when you use another currency to buy something. So if you exchange USD for Euro and then the price of Euro goes up by 5% then when you buy a sandwhich with that money you have to pay taxes on 5% of the price of that sandwhich. Unless you convert your USD to Euro at the time of the transaction buying things with euro can turn into a tax nightmare since you have to keep track of the exact time you purchase something to know the exact exchange rate.
If this wasn't the case you could just avoid capital gains by buying something with eulos and reselling it for usd with no profit.
In the US the taxable event generally occurs when one currency is converted back to USD, not when a non-USD currency is spent. Real-time conversions do occur and you are absolutely correct it can turn into a tax nightmare when traveling :(
That is not accurate. If a US citizen buys, for example, an extra $1000 in euros that are not spent, and the exchange rate changes, it is a taxable event.
The specific line item is on Form 8949, to report gains from foreign currency exchange transactions, Part I and it absolutely applies to vacation travelers, not just FOREX investors.
But their kids probably will. Is a generational investment not a security? I’m not even trying to be cute. Everyone is competing with corporations for single family housing for a reason now.
False. If your local governing agency (whether private or public) fails to maintain the local parks, schools, and roads, the value of your house will fall. Houses are securities according to the Howey test.
“The respondent companies are offering something more than fee simple interests in land…they are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise.”
Couldn't that apply to just about anything the moment anyone anywhere says "Buying X is a good investment!" so long as it's possible that the promotion resulted in X selling at a higher price?
That doesn't mean securities must be never traded ever, especially given your broad definition.
Problem is Coinbase wants to be regulated, but the regulators are *not accepting* any regulated venue nor even willing to open discussions. Quite a strange attitude.
"We believe a large number of crypto securities also exist, and should be available to register and trade on SEC registered brokerages and exchanges, a point we've made repeatedly in our discussions. 9/15"
SEC is an enforcement agency, their job is not to be buddies with startups to figure out what is crime and what is not. Coinbase can hire lawyers for that until they are certain they can defend themselves in court. We live in a rule of law, after all.
It's like the cartel asking "clear guidance" from the DEA about what exactly is and is not an illegal drug that can be pushed on the street, and then complaining that they won't sit at the table and discuss the legality of fentanyl. If you want to be in this business, lawyers should be your _primary_ expense, and make sure you hire enough to be confident that you can defend your practices.
Rules and laws aren't supposed to be a puzzle you argue about via $1000/hr lawyers. They're meant to be a framework to achieve policy goals. It is 100% reasonable to ask the other side what their opinions on things are.
If they don't reach out to the regulators then people complain that tech is just trying to skirt the rules again.
> Rules and laws aren't supposed to be a puzzle you argue about via $1000/hr lawyers.
Laws are living things that must always be up for interpretation. This is the sole reason we have courts instead of two parties writing their arguments out into a formal language and feeding them into a theorem prover to see who is right.
And good news, most of the cases they are not! NASDAQ is a public company, you can find out how much they spend every quarter on lawyers. I can tell you that their legal expenses would be smaller than Coinbase's.
Why? Because Coinbase _chose_ to operate in a place where the legal grounds were not quite clear. They profited from the lack of regularity clarity in their early years. Now that the regulations are solidifying in directions that they don't like, they're shedding crocodile tears because, guess what, doing shady business is getting more legally expensive than it is profitable for them. Thankfully, laws are not written solely to maximize profits for private corporations, or protect the profits that they made during times of unclear regulations.
What is the USA trying to achieve though? If you want innovation to continue in the USA you can't expect companies to wait decades until the government has decided what is allowed and what isn't, they're just going to setup in other countries instead.
The USA was founded on freedom and the ability for people to innovate and create, now it's becoming a place many companies avoid because of a hostile government and this is going to be disasterous for the future wealth of the country.
Coinbase points out in the post that it's been much easier to operate in every other country than the USA.
> If you want innovation to continue in the USA you can't expect companies to wait decades until the government has decided what is allowed and what isn't, they're just going to setup in other countries instead.
Innovation like South Korea's Terra Luna, Bahama's FTX, and (region unspecified)'s Binance? What would the US do without such "innovation", the horrors!
> The USA was founded on freedom and the ability for people to innovate and create.
Including creative legal solutions that circumvent laws, I assume? I have been involved in an early crypto project in the past, and the way the "token"s are created is by first making them as digital securities, and then adding enough "utility" to give it plausible deniability under the Ethereum defense (something with enough utility may not be a security.) This process generally takes multiple rounds of back-and-forth between the "devs" and the lawyers. However, these tokens act like securities, people buy them as if they're securities, and they are dumped on the market by early investors and devs like they are securities. Unfortunately, it's not fooling people anymore, and SEC can actually take steps on it.
> Coinbase points out in the post that it's been much easier to operate in every other country than the USA.
"Much easier to dump fake securities on the public elsewhere" is probably a feature of the USA and not a bug. I'm glad it is the case.
> you can't expect companies to wait decades until the government has decided what is allowed and what isn't
I think if it’s not outlawed then it’s allowed. In this case, they should probably hire lawyers to work out if what they are doing is outlawed and listen to their counsel’s advice … or don’t.
> Coinbase points out in the post that it's been much easier to operate in every other country than the USA.
>It's like the cartel asking "clear guidance" from the DEA about what exactly is and is not an illegal drug that can be pushed on the street, and then complaining that they won't sit at the table and discuss the legality of fentanyl.
Fentanyl is clearly illegal to sell in the street, and this information is available and codified into law. So this is a bad example to use to argue that Coinbase don't have a point.
DEA and the law in general should (and indeed does) provide clear guidance as to what substances are illegal and which are not, and even whether a particular novel substance is legal or not.
> Fentanyl is clearly illegal to sell in the street, and this information is available and codified into law.
Fentanyl was invented sometimes around the 1960s, and cocaine at some point was prescribed liberally by doctors. Lot of new inventions are immediately not "clearly legal or illegal" from the get go. And from where I stand (and very likely, SEC stands), it is also quite clear that unregistered token sales should be illegal. If Coinbase wants to build a business on top of it, they better have lawyers ready to argue why it should be legal. Or, they can wait until there is clear laws and regulations, which necessarily evolves slower than start-ups.
Coinbase can't profit from regulatory arbitrage and then turn around and complain that there are no clear regulations. If there were, Coinbase would have much thinner margins because there would be many more exchanges doing exactly what they do but better. What is happening right now is Coinbase mistaking themselves for an "innovative tech" company when they were primarily an "innovative legal interpretation" company, and crying about the government when they got caught with their pants down.
I'm not sure that is the analogy you want -- You do understand Fentanyl is a legal drug with legitimate uses? If Coinbase claims to want to be a doctor, then by your analogy the DEA is deliberately being unclear to trap doctors. Which, lol, is something that the DEA is known to have done.
In the US there should be an expectation that if a regulatory agency is going to regulate it must have clear and unambiguous rules, and have enforcement policy documented and reviewed. Anything short of that is just a recipe for abuse.
To be clear, all sorts of regulatory agencies do tons of shenanigans, and this is low on the list. But still. We can do better.
> If Coinbase claims to want to be a doctor, then by your analogy the DEA is deliberately being unclear to trap doctors. Which, lol, is something that the DEA is known to have done.
No, SEC is telling Coinbase to register the securities (aka tokens that walk like securities and quack like securities) that they are offering. Just like it's legal to sell fentanyl with proper medical and pharmaceutical licenses, it is also legal to register your tokens as security and follow all the security sales regulations. However, Coinbase doesn't like that because it cuts into their profit margins, just like the cartel doesn't like registering as a medical organization because it will limit their profits.
I think your analogy is interesting but doesn’t the government list a scheduled of specific drugs and their classification? So applying your analogy would mean the SEC would list specific crypto on a schedule based on what type of security/commodity/exempt asset schedule they are governed by.
I also think government should work to promote certainty and treat good faith efforts from citizens and companies to get clarity with mutual good faith.
> I think your analogy is interesting but doesn’t the government list a scheduled of specific drugs and their classification? So applying your analogy would mean the SEC would list specific crypto on a schedule based on what type of security/commodity/exempt asset schedule they are governed by.
Yes, because all drugs that can be sold to the public have to apply for FDA approval first, and wait until their entire procedure is vetted. If you think cryptobros are willing to sit there and wait for SEC approval on their tokens that they pump and dump on the public we must be living in two different worlds.
That's because they should not be regulating cryptocurrencies, and neither should the CTFC. It's a new asset class with very dynamic properties. Wouldn't it be better for congress to just create a new agency to handle it?
Every time you derive a financial instrument, you produce a new asset class. That doesn't make the instrument or its derivative not a security; the definition of "security" impinges regardless.
There are a lot of dynamic securities and instruments out there. The dynamism isn’t a property considered. In fact the complexity of an instrument makes it get especially close scrutiny. But the primary thing that’s driving scrutiny is scale of public impact. It’s hard to say crypto is a fringe asset class, or that the public isn’t harmed by lack of regulatory frameworks. You can’t look at FTX, or the other stories of millions of people being soaked by con artists and poorly managed controls. The more crypto becomes a public commodity, or the effects of crypto trading impacts the public indirectly through systemic instability, the more strident the regulatory actions will become. Frankly the market participants created the situation through their flagrant inability to keep their hands in their own pockets.
So, what do you expect to happen? Cryptocurrency companies should just be allowed to run around doing whatever the hell they like until Congress, which is clearly dysfunctional ever since the Republican Party made it their mission to prevent the Democratic Party from doing anything ever again, manages to get some kind of regulation out? And how long do you expect that to take?
The only real alternative seems to be "no one is allowed to do anything with cryptocurrency until there are clear regulations around it."
I know which one of these I would prefer, given only these choices, and it's definitely not the one that enables massive fraud and grifting.
What do you expect to happen, the local Sheriff gets to enforce whatever "laws" s/he can make up, so long as they aren't explicitly approved activities?
No, I more or less expect what is happening: until and unless clearer laws come from Congress, regulatory agencies use their best judgement on how to apply existing regulations on things that are pretty close to what cryptocurrencies are, to prevent mass scams and fraud.
> If you want to be in this business, lawyers should be your _primary_ expense, and make sure you hire enough to be confident that you can defend your practices.
If you can say something like this with a straight face, you're just a bad person.
An enforcement agency should make the rules it enforces very clear. The DEA does make it extremely clear which drugs are illegal which is why the cartels never need to ask.
> regulators are not accepting any regulated venue
Sure they are. Gemini is registered as a trust company in New York State, and has a New York State Bitlicense. They have insurance covering commercial crime, and fiat deposits are held by a bank and are not assets of Gemini. Not that Gemini is perfect, but they are to some extent regulated by banking regulators who actually look at their books.
Coinbase, though... Who audits the assets behind USDC?
> Problem is Coinbase wants to be regulated, but the regulators are not accepting any regulated venue nor even willing to open discussions. Quite a strange attitude.
Coinbase wants regulations that permit them to do things. Regulators have decided permitting Coinbase to do things would be bad, so they haven't. Regulation doesn't necessarily mean permitting, it can also mean forbidding.
The whole regulatory infrastructure from the SEC expects a security to be backed by or representative of a physical asset of some sort - be it shares of a corporation with tangible assets, gold, or in the case of futures, a commodity. Even bonds are, they're securitized debts.
Crypto has no physical manifestation or nexus, there is no fungible good backing it, nor another which it can be directly (and implicitly) exchanged for, treating it as a security makes about as much sense to me as treating lottery tickets as one.
Edit - I just learned of the Howey test, but I got the fundamentals of it correct.
> The whole regulatory infrastructure from the SEC expects a security to be backed by or representative of a physical asset of some sort - be it shares of a corporation with tangible assets, gold, or in the case of futures, a commodity. Even bonds are, they're securitized debts.
No it doesn't. Corporations are very obviously unphysical, as are debts. Securitizing e.g. music royalties is completely normal.
I think that misses the parent's point. Corporations own physical assets (like buildings) and things with accepted intrinsic value (fiat currency). but they also indirectly own rights to other things that are indirectly backed by physical stuff in a similar manner (like shares of other corporations, etc.). That's in contrast to something like Bitcoin which doesn't come with a direct or indirect right to anything with intrinsic value.
> I think that misses the parent's point. Corporations own physical assets (like buildings) and things with accepted intrinsic value (fiat currency). but they also indirectly own rights to other things that are indirectly backed by physical stuff in a similar manner (like shares of other corporations, etc.).
Not necessarily. Sometimes a corporation's value is based on something purely speculative, like a drug patent that may or may not work out, or even something that's widely thought to be worthless, like hot tips on the search for Bigfoot. That's completely normal.
Do you have any examples of this? A corporation that owns literally nothing, whose entire value is based on something speculative (like a drug patent), and who has a traded security?
Getting to exactly $0.00 in the company bank account probably requires an improbable level of fine-tuning (if only because you need enough to file your annual registration statement or whatever), but ISTR Retrophin was down to something like $3.15 + some valuable drug patents at one point in its penny-stock days.
Where do you think invested cash goes if not the company bank account? When you invest in a company, they get some cash and you get a claim on the company. If they then spend all that cash on buying drug patents, marketing, filing registration statements etc., then your shares are no longer backed by cash. The cash has been spent!
Er, I've been saying it does go into the company bank account (which you own a share of), unlike with Bitcoin. Please re-read my comments. You're turning what I said 180 degrees on its head.
> Er, I've been saying it does go into the company bank account (which you own a share of), unlike with Bitcoin.
Sure. But it can then be spent by the company, and that doesn't (necessarily) destroy the company's value. Valuation isn't about physical assets.
> Please re-read my comments.
I did, they said exactly what I thought they did. Maybe you should re-read mine, or write yours more clearly, or think through what you're saying a bit more.
I will try to make this even more explicitly clear one last time, but this circling around is draining my energy too far to keep going after this last comment. I hope this helps.
> But it can then be spent by the company, and that doesn't (necessarily) destroy the company's value.
...as I've been saying too.
> Valuation isn't about physical assets.
You're unfortunately missing what I'm saying.
The valuation of a company is based on physical assets (and liabilities), which includes your investment itself. By which I mean: by investing, you earn a proportional legal right to the assets (yes, minus any liabilities; yes, this can change over time; and yes, this need not always be a strictly positive value) that the company has. All else being held equal, if the company acquires $1 million in its bank account, the legal value of your shares goes up or down proportionally to your shares. The fact that nonphysical things (like IP) can also influence the market price of a company's shares is completely beside this point.
If you want something simpler, consider the degenerate case of a company with a solo 100% share: if you own that 1 share - and the company has $1 million in its bank account - the market for the company's stock is completely irrelevant to your claim of that $1M. Even if nobody is willing to buy that stock from you, you are still a millionaire; you can liquidate (or is "dissolve" the word I want here?) the company and claim the $1M in the bank. Your investments aren't just imagination in your head; they are secured to something with "physical" value. (This is true even if "physical" is just "dollars in the bank's database." Yes, it's just a digital number, but it has "physical" value by the government's fiat - hence, fiat currency.) Similarly, if you and your partner each own a 50% share in that company and the company is immediately liquidated, you each have a right to the $500k in the bank (exactly the same amount as each other), regardless of what anyone may or may not have been interested in paying for either of your shares.
This is not the case for Bitcoin. Bitcoin doesn't have "assets" (let alone liabilities!) to swing your "share" price with. "Investing" in Bitcoin doesn't earn you a right to... anything, really. The price of Bitcoin is only a function of what people are willing to pay you for it. If everyone else on the planet sets their Bitcoins on fire (whatever that might mean), it doesn't matter if you'd invested a trillion dollars into Bitcoin: you still lose 100% of that "investment", because your Bitcoins do not ultimately reduce to physical ownership of anything. Because you had just sunk money into a vacuum, "unsecured" by anything with value that stands on its own.
There's something fundamentally different about Bitcoin than stocks here. This distinction is what I understand to be what we call the notion of a "security", and what makes Bitcoin not-a-security, but more like a currency. Which, to me, perfectly explains why the IRS calls it a virtual currency, and why the SEC says it's not a security.
This also explains why "pegging" a cryptocurrency (read: "securing it to another asset") would be such an important factor in determining whether it's a "security". Of course, this means the nature of the asset your cryptocurrency is pegged to (such as whether it's a security!) should also matter here, and so on.
> All else being held equal, if the company acquires $1 million in its bank account, the legal value of your shares goes up or down proportionally to your shares. The fact that nonphysical things (like IP) can also influence the market price of a company's shares is completely beside this point.
No, it's the whole point. Things that are nonphysical can have value. Value doesn't have to be based on physical assets.
> There's something fundamentally different about Bitcoin than stocks here. This distinction is what I understand to be what we call the notion of a "security", and what makes Bitcoin not-a-security, but more like a currency.
Plenty of things are securities without being stocks. You can securitize pretty much anything.
Bitcoins are not like stocks. I've never claimed they were.
That has nothing to do with what I'm saying. If you invest in a company that "only" has IP, your invested cash itself is still part of the company's assets, so it's not like you're buying shares of vacuum. If the company liquidates itself - you get back your proportion of the company's assets. The situation is not the same with Bitcoin.
Yeah, it certainly has similarities to an unbacked currency. I wouldn't personally call it "fiat" currency (unless you think El Salvador making it legal tender makes the difference here), just some sort of unbacked digital currency. The IRS's characterization of it as a virtual currency seems like an accurate description to me (as I'm guessing it is to you) - and the SEC refusing to consider it a security also makes sense to me (for all the above reasons I've been trying to explain to the others here).
"By arbitrary decree" was the meaning I meant. Someone declared it to be a currency, it need not be a government doing the declaring. But yeah, we're basically in agreement, that's the underlying problem with crypto, it's a fiat currency (no intrinsic value) traded like it's a security (which usually has some even if very abstract, intrinsic value).
...Which is more or less what many of us have been citing all along as a reason why cryptocurrencies are bullshit that shouldn't even be allowed to exist.
No, you still are wrong. It has to be backed by an enterprise. Commodities are regulated by the CFTC. There’s no need for a security to be back by physical assets. A corporation can have no material asset backing (in fact some retailers have no assets at all, everything is rented or purchased on warehouse lines of credit with the expectation they can generate cash flow with minimal to zero capital investment; but their shares are still securities because they’re backed by an enterprise. I find it strange you learned of the Howey test but didn’t understand this, as it’s very clear in the description, a security must be:
An investment of money
In a common enterprise
With the expectation of profit
To be derived from the efforts of others
Terrible examples. Lottery syndicates are absolutely a thing.
I remember reading a syndicate that calculated a particular state lottery jackpot (I want to Virginia.) had grown to a point where it was well into th profitable zone so they sent hundreds of people to virtually every gas station in the state.
They literally bought every single possible combination (this was pre powerball, so this was merely millions of tickets and not billions.)
Obviously they won. This particular drawing was so rich that the only way they could lose was if 2 or more others bought the winning number also. Even if they had split it 50/50 it would still have been profitable.
I think crypto is somewhere script and private fiat currencies but traded like a security, and probably not legal to be openly traded as they are, a legal terra nullius. Until there are court decisions or congressional action to firm up this situation, it will persist as a gray area.
In many projects, staking allows you to participate in governance.
You might also want to stake in order to keep up with inflation. If you make 10% in token interest, but the supply has increased by 20% in the same time period market cap decreased, you've probably lost money overall. You're still better off staking than holding in your wallet.
Point is that staking is not necessarily done as an expectation of profit (regardless of how crypto exchanges might advertise it).
a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party
No, that’s not correct. They have to be tested against the Howey test specifically that there’s an enterprise of some sort backing it. This is why securities are distinct from commodities, foreign exchange transactions, or buying baseball cards.
Crypto currencies can easily be viewed as securities if they meet certain criteria and some have been declared as such. But it’s far from settled that the SEC broadly has domain over crypto currencies, or if they’re commodities, or more neutrally currencies. They trade and behave much more like currencies or commodities, but some things like staking services behave more like securities. But most definitely “whatever the SEC wants” isn’t the criteria.
I think cryptos bull market was fueled almost entirely by the regulatory vacuum in which the markets operated. We already have regulatory regimes for every type of financial instrument and transaction. Crypto shouldn't need special rules. If it's a currency, then great it's illegal to mint currency in the US so you're banned forever. It's definitely not a commodity, so that means you live life as a security or else. A security with no interest payments, dividends or equity stake. But definitely capital gains tax.
You can mint currency in the US, as long as you cannot be confused for USD (or probably other currencies). And capital gains isn't tied to it being a security at all.
The problem is you get caught in a lot of red tape if you want to issue securities with no intrinsic value whatever. For good reason-- the SEC's mission is to stop scams and a valueless offering is the archetype of a scam.
Isn't crypto more like a service, rather than any of those things? You deposit some, withdraw some, and in between you get an account. Like a banking service. Which is when the banking regulators properly should shut it down.
> The SEC has a very loose definition of a security - vaguely...
Vaguely written laws are an awful idea and anybody who supports the idea that this is normal should rethink that position.
From a regulatory standpoint, crypto is a new thing and the regulations need to be clear and concise and widely understood. Making the argument "Because the government said so" will elicit no sympathy from logically minded folks.
No because there is a game and the game is the main reason to own them; appreciation of value of rare cards is a by product and not the designed intent or the main reason to buy cards.
If Pokémon was marketed as “hey buy these cards they will be worth more tomorrow” (actual or implied marketing) then you could make that argument, which has gotten those NFT “games” into trouble with the SEC.
Isn’t most crypto marketed this way as well? To buy coins or tokens, buying in into some kind of ecosystem. You don’t necessarily make any money, 1 etc is worth 1 eth tomorrow.
You only realize any gains or losses if you sell that 1 eth and eth to usd/some other currency value has fluctuated.
Gold is classified as a commodity. The Commodity Futures Trading Commission (CFTC) is the federal government agency that regulates the commodity futures and other commodity derivatives, not the SEC.
The CFTC says they're in charge of cryptocurrency. They're already actively enforcing it too, the CFTC has brought multiple prominent cases against people in the crypto speace. For example Avi Eisenberg, FTX/Alameda, Gemini, aso.
It almost seems like there is no regulation nor clear guidance and even different arms of the government can't decide which it is.
But, see, until there is clearer guidance, cryptocurrencies don't get to just have a free ride (the way they have all too much up till now). You don't just get to say, "Well, gee, looks like no one is certain which of these agencies gets to regulate us; I guess that means we can do whatever we want and no one can stop us!"
Each agency is going to make a good-faith judgement as to whether they have jurisdiction, and if that means 2 or more agencies start telling you what you have to do...well, maybe you shouldn't have leaped with both feet into a brand-new area where the regulations were unclear just because you thought you could make a quick buck, hmm?
Regulatory bodies need to be empowered to regulate, and they need to demonstrate their jurisdiction. Like the department of energy can't just start making agricultural rules because agriculture involves energy - it needs to show that congress has specifically given it power to make agricultural rules, which would be pretty unlikely given that there is a separate department of agriculture. If no one knows who is supposed to be regulating something, that's a very compelling argument that no one has been empowered specifically to regulate that thing.
Staking your crypto to make it grow - somehow? Isn't that just them taking your crypto and putting it in some unexplainable leveraged trade like ftx was doing.
Are you proposing we regulate crypto like realty? That's the thing about all these arguments, crypto proponents want all the advantages of one system, but when it comes to the "disadvantages" suddenly crypto is something completely different.
Different incarnations of "privatize the gain, socialize the losses". Coinbase became the company it is today because they have the first mover's advantage in an unclear regulatory landscape, and it pulled in profits only because of that regulatory arbitrage. Now they are turning around and playing victim of the same regulatory landscape that made them what they are today.
I don't need to consult coinbase or any other stakers to stake crypto. That would be a very broad definition for an agreement, one that's broad enough to maybe include housing, in reference to the GP comment.
a product having utility does not preclude it from also being a security
its just that the SEC isnt applying that logic anywhere aside from crypto. so its either apply it everywhere or make a clear path to exemption that crypto assets can predictably comply with, where nothing has to be filed at all
I don’t think either the IRS or SEC can raise taxes. They can enforce regulations within their purview, and they can be corrected if they step out of that. But neither organization sets tax rates or even tax policy. If they move to enforce regulations within their purview in a way you don’t like, by all means complain about that. But making up magical powers they don’t have is a bridge too far. I didn’t downvote you, but that’s my critical take.
>vaguely, something you buy with the expectation to make money from it appreciating
This isn't remotely true. A grocery store isn't selling you a security when you go buy an apple even though the store bought the apple for cheaper than it it thought it could sell to you in the future.
Anything you are able to resell can fall under this.
You may want to realize that if the value of apples depreciated, the store could lose money. The store has an expectation that the product they buy will be worth around the same or appreciate. Buying appreciating products means that you will profit more which is in a store's interest.
If you want a better example of something normal that appreciates take for example holiday themed products. They are worth much less before the holiday, there is a pump in value around the avenue and then a dump. Stores have to careful plan how much to buy to not lose money.
Everyone I know uses the term “invest” or “speculate” when they buy any crypto asset. I haven’t met anyone use the term “diversify” when buying crypto like you would if you bought USD or EURO or bonds.
I know someone who used all of their 200k medical loans to instead buy btc. Clearly individuals believe these to be securities with expectation of profit since there’s interest in the loan. The guy even bought it on binance under a fake name so he won’t be taxed.
Whatever legal mumbo jumbo used by companies might be right. But the users and market treats these as securities - especially with all the derivatives built on top.
I think that the calls for SEC clarity are pretty disingenuous. From what I have gathered, the conversation typically goes like this:
Industry: Please give us more regulatory clarity
SEC: everything not BTC/ETH is a security, please register them (read: and we'll throw it into the trash because we don't like it)
Industry: but these are clearly not securities, please give us more clarity
SEC: everything not BTC/ETH is a security, please register them
Industry: that's not an answer, we would like to trade crypto
SEC: everything not BTC/ETH is a security, please register them
So the SEC is clear, it's just that the clear answer the SEC is giving is not up to the tastes of industry.
But the SEC is also constrained by politics in the sense of external pressure making them not want to crack down, and by internal politics of hard-to-win cases about proving Howey tests that take forever.
So we have the current situation where the SEC has been very clear that it doesn't like any of the crypto stuff, but the industry pushes the boundaries and sits in the legal grey area where the SEC says it's not kosher but courts may or may not agree. Hence sporadic enforcement actions where they think they have a good case, which then leads to complaining (please more clarity), with the same response (none of this is legal, just because we haven't filed enforcement actions doesn't mean it's kosher).
Edit: ETH is kinda borderline; there is semi-widespread consensus that BTC is not a security, and no such consensus for pretty much anything else.
Edit 2: I don't mean the conversation literally. As far as I know there is no official stance on BTC, but one gets the sense that trying to argue in court that BTC is a security is a losing proposition, whereas <insert governance token for newnotscamcoin> is much closer to a winning case.
> everything not BTC/ETH is a security, please register them
Coinbase tried repeatedly to register them with the SEC and was turned away, which seems to be lost on your point.
From the article:
> The SEC will not let crypto companies “come in and register” – we tried.
> The Wells notice comes out of the investigation that we disclosed last summer. Shortly after that investigation began, the SEC asked us if we would be interested in discussing a potential resolution that would include registering some portion of our business with the SEC. We said absolutely yes. Specifically, the SEC asked us to provide our views on what a registration path for Coinbase could look like – because there is no existing way for a crypto exchange to register. We developed and proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none. We also reiterated that we stand by our listings process – we don’t list securities today – and repeatedly invited the SEC to raise any questions about any asset at all on our platform. They raised none.
> Coinbase tried repeatedly to register them with the SEC and was turned away, which seems to be lost on your point
My entire point is that the SEC doesn't like them, to them saying "please register" is the same as saying "get bent". I specifically mentioned that those registration papers are going straight into the trash.
I think "all these crypto projects are securities" is a perfectly clear stance. Coinbase clearly disagrees, so their calls for clarity are actually calls for "please change your mind". People then go ahead and launch public offerings anyways, and act all surprised when SEC files enforcement actions.
Some call it regulation by enforcement, but really I see all along the SEC has been clear in saying that it's all securities. Now, enforcement actions go in front of a court and the court may disagree with the SEC, which then clarifies regulation by setting a legal precedent for the SEC being wrong.
Edit: this is how I think about it: there is a gradient from "clearly under SEC jurisdiction" and "clearly not". The SEC says "most of this gradient is under my jurisdiction", crypto projects say "no it's not". Clarity in this situation means drawing lines in the gradient, and when enforcement actions get filed then a court gets to weigh and draw lines for them.
> I think "all these crypto projects are securities" is a perfectly clear stance.
That's not the part of their stance that's unclear. The unclear part is the part where they say "please register" when they really mean "get bent".
> their calls for clarity are actually calls for "please change your mind"
Coinbase's calls for clarity are actually calls for "you asked us to register, so let us submit a registration application already".
> really I see all along the SEC has been clear in saying that it's all securities.
Again that's not the part of their stance that's unclear to me.
> Now, enforcement actions go in front of a court and the court may disagree with the SEC, which then clarifies regulation by setting a legal precedent for the SEC being wrong.
The SEC's job is to write clear regulations, not to invite corporations to pay $1000/hr lawyers to conduct mind-reading sessions in court.
The calls for clarity are firstly clarity about registration. Failing that, clarity about jurisdiction to work around the lack of clarity on registration. Nobody gives a shit about whether or not their dogcoins are technically securities or what the gradient is.
The SEC is considered by many to be acting in bad faith by not clarifying regulation, which in effect is an abuse of a pocket veto of sorts over crypto.
Other jurisdictions do not have this issue. The SEC stands alone.
It's not clear because their words don't match their actions. The SEC says they are securities but then refuses to regulate them like securities. If they are securities then they should allow Coinbase to register them. If they are not securities then they should not allow Coinbase to register them. But instead they say yes, they are securities and you have to register them, but no we won't let you register them, and we are going to take legal action against you because you didn't do the thing we told you to do and you tried to do, but we didn't let you. The SEC is clearly acting in bad faith.
It's not really the SECs job to just decide that Americans cannot own many crypto assets, which is de-facto what they're doing by refusing to regulate crypto assets that look like securities. That ought to be a legislative decision - instead the SEC is making it by refusing to engage with the crypto industry
"Please register" is disingenuous bureaucrat speak for "get bent" in the same way that calls for "clarifications on the SEC's policies" are disingenous bureaucrat speak for "get bent".
I don’t think your guess is correct. Working with regulators means you fill out a form, then 3–6 months later they send some questions. You spend one day to answer them and ask a few of your own, then send it back. 3–6 months later you get another list of questions. Some of those questions are identical to the last pass. You spend one day answering and… rinse and repeat for a few years.
From what I gather the SEC just ignored Coinbase’s questions in this back-and-forth.
The SEC is kind of relying on these appeals to authority to pile up so nobody really questions anything
Basically
A) Kraken’s staking service was a little different, but
B) Kraken didn't fight it and the CEO resigned. Jesse was just over it and not willing to fight. Jesse grandstanded against New York’s bitlicense for nearly a decade, continued Monero support in Europe while dropping it in the UK, he’s had his fight and wants to do other things with his life.
On the UK Monero stance “Unfortunately, we have to pick our battles and look out for the broader business in the country.”
The only way validators who have staked eth make any earnings is if they perform their validator duties. If they don't do the work, they get penalized. If they abuse or attack the network, they get slashed. Since a validator's earnings come from their own work, the whole 'To be derived from the efforts of others' prong completely fails.
There are pretty decent arguments why the other prongs fail as well.
What can be a security, is if a provider offered a managed yield service promising a certian return and guaranteed instant liquidity and then used staking in the background to generate that yield. This is what got Kraken in trouble. And why they settled so easily. Where Coinbase falls is going to heavily depend on the specific facts of their service.
> The only way validators who have staked eth make any earnings is if they perform their validator duties. If they don't do the work, they get penalized. If they abuse or attack the network, they get slashed. Since a validator's earnings come from their own work, the whole 'To be derived from the efforts of others' prong completely fails.
Validating by running your own node is a-ok. Sending your tokens to Coinbase, a registered public company, who is pinky-promising you they will give you 8% returns every year, without registering this product with SEC, is not a-ok. How is that hard to understand?
> "The U.S. Supreme Court's Howey case and subsequent case law have found that an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.[5] The so-called "Howey test" applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities."
So I guess they are arguing they are not securities since their is no "effort of others" even if there could be a reasonable expectation of profits? Similar to art I guess? This seems like a plausible case on a strictly by definition basis, regardless of the way people are actually acting.
If the case is that the SEC just doesn't want to let them register the any of it, is there really no way they could be more straightforward? It seems like post FTX they would have a lot of leeway for this kind of thing. Unless maybe they think enforcement is a better path to lead to eventual regulation?
> If the case is that the SEC just doesn't want to let them register the any of it, is there really no way they could be more straightforward? It seems like post FTX they would have a lot of leeway for this kind of thing. Unless maybe they think enforcement is a better path to lead to eventual regulation?
Part of it is political capital imo: when crypto was going up, saying "none of this is legal" costs political capital and nobody wants to listen; when it's going down and FTX is collapsing, saying "none of this is legal" is free and suddenly Congress/courts are much more partial to the message.
It's the nature of such regulatory agencies. The path to career advancement is often shouting "this is bad, we should regulate" after a disaster occurs, not before. Before the disaster, <thing> made money, and putting a stop to it is hard; after the disaster, <thing> lost people money, people are angry, so putting a stop to it is much easier.
"If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.
And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise."
It's farcically absurd that the crypto industry built its brand on avoiding government rules and now they are asking for regulation to protect their interests.
There's nothing absurd about a company seeking to legitimize a component of their business.
The crypto industry is not built around avoiding government rules, that's a myth propagated by its many detractors. It was born to address a failure of the banking system that hurt regular people the most.
>The U.S. crypto regulatory environment needs more guidance, not more enforcement
It already has exceptionally little enforcement. Once it gains regulatory guidance is when actual enforcement of those policies can begin.
Until that time, there are a lot of analogs in traditional finance to some of the services that Coinbase offers. At least cherry pick the best analogs and register them the same way a traditional financial instrument of that sort would be. (like the currency exchange). Concede some ground by registering a few of the coins as securities while fighting tooth & nail in the courts & politicians to address the differences needed in a regulatory agenda. This will show willingness to participate in the lawful regulatory framework even if you disagree with it-- a good citizen, so to speak. Over time this will create a working relationship rather than an adversarial one.
Getting appropriate regulatory frameworks in place is going to be a game of inches, not quick homeruns, and a strategy that only includes the homerun approach is not going to work as well.
Instead, Coinbase has communicated with the SEC its viewpoints but refuses to adopt the closes equivalent regulations. Violating (in the SEC's eyes) regulations under the reasoning that you don't like them and are trying to change them is just not an endearing course of action.
If Coinbase had proactively approached the SEC with action and not just talk the amounted to "we disagree" ....... How about "We fundamentally disagree and believe the status quo justifies current processes but we want to show a willingness to engage, in principle, in the regulatory framework we have. Let's come up with a good first step as we work things out or let the courts decide or however we need to settle all of this"
The problem with both the SEC and the California equivalent is their chilling effects on new technologies.
They send letters to companies saying "we think you're doing something bad", but don't tell them exactly what or file a lawsuit. Now the company is stuck. They can keep operating, but if they are found to actually be in violation, they can be fined all the way back to when they first got the letter.
So their only real option is to just stop doing business until they get an actual lawsuit or another letter stating that the enforcement agency is no longer thinking about investigating them.
I've personally been affected by this twice. Once the California regulator sent a letter to a crypto platform I was using, and they simply stopped allowing Californians to use the platform. I had to personally lobby on their behalf (along with them and many others) to the regulator to either sue them or release them from liability so I could get back on to the platform.
They shouldn't be allowed to send these letters, or if they do, they should require specifics so the company can stop doing the specific thing(s) the regulator doesn't like.
Ironically Gary Gensler chair of SEC has one of the best lectures on the fundamentals of money and crypto. Free on YouTube under the MIT's OpenCourseWare channel.
Why is it ironic that the head of one of the most important financial bodies in the country knows a good deal about different currencies and currency systems?
Because the organisation he heads is deliberately opaque on most things crypto and refuses to engage with companies like Coinbase that are trying to operate in this space.
Because he seemed to me like a nice guy genuinely excited about crypto and blockchain in general. He does touch on the topic of regulations but nothing in his lectures would make you think just a few years later he will be leading the SEC, cracking on crypto exchange companies and pushing on regulations with an iron fist.
This kind of mentality in 2023 verges towards conspiracy theory. It can’t even be proven to be baseless, because it relies on the semantic ambiguity of the phrase “true believer”. It’s really bizarre to see this form of irrational skepticism afflicting a tech person (presumably). Really says a lot about the extent of polarity amplification in society. Almost nobody is spared
Just here as an anecdata-point, crypto understander (build a really, really dumb blockchain in python during HS) who doesn't think it'll be used for anything beyond a cool new datastructure/verifiable constraint mechanism for relational databases.
The coins we see traded today are a short-term jousting match between people who don't know a blockchain from a linked list. You could replace them with an exchange of company coupons/points and see identical market effects.
Dishonest, they tried to corner the crypto exchange market by raising the costs to do business by encouraging regulation. I'm so glad it bit them. Coinbase is an evil dishonest company that uses dark patterns to prevent users from getting their money out. Now they are pretending to be the victim. Please shut down coinbase and ban their execs from working with money.
Various regulatory bodies are fighting over crypto as they want to be the one to regulate it. Coinbase is just stuck in the middle of the battle for control.
At this point I just assume coinbase only exists because they were somehow stealing less obviously than the others. Or, they stopped stealing illegally just in time, have started hemorrhaging money and are praying they can get back to stealing legally by selling themselves as the responsible actor in an overwhelmingly corrupt space. There's a window here for them to solidify themselves in a gray space that just abuses people for money forever like MLMs, time shares, trailer parks, and tom selleck selling old people reverse mortgages.
"In the meantime, Coinbase will continue to do what we do best: updating the financial system by building the most trusted products and services to advance our mission of creating more economic freedom and opportunity around the world."
Is this equivalent to "We'll keep taking the public's money even when the SEC is investigating us and enforcement action appears imminent."
Coinbase is a US-based company.
When Paxos Trust received a Wells Notice last month, they stopped minting BUSD.
Nobody has any kind of inalienable right to their preferred business model.
You want some new crypto rules to make your business more lucrative. Meanwhile, I want someone to explain to me how crypto is a necessary piece of our economy.
The way I see it Coinbase should be thankful that crypto wasn't banned or classified as a gambling instrument.
SEC already has rules, hire lawyers to interpret them and decide what risk is worth taking and what's not. This is just another case of libertarian crocodile tears because government won't guarantee them against any and all sorts of business risks while letting them keep the fat profits.
Like, if you are Coinbase, your primary product is a sort of regulatory arbitrage -- there is legal risk associated with it, and so one of your primary expenses would be an army of lawyers to decide where on the risk-reward curve you would want to be. The army of lawyers is too expensive? Buddy, no one is forcing you to be in this business. Just because you made profits in the earlier years with little to no regulation doesn't mean that government is bound to let you keep making that profit forever. Deal with it like a grown businessperson rather than whining.
It sounds like Coinbase did hire lawyers, and it sounds like SEC is getting heavily questioned in court--by the judge!--about hiw the SEC can enforce without disclosing why or what.
I would guess that Coinbase, as a long-standing US-based exchange that is now publicly owned and therefore subject to various (stringent? not sure if I should laugh at that or not) business regulations, would be attempting to achieve / maintain legitimacy in the least under-handed way possible given the prevailing winds are already heavily cryptocurrency-skeptical.
Clarity is what's being asked for. If the SEC deems some/all cryptocurrencies a security, then allow Coinbase (or whichever other exchanges) to file the paperwork required to exchange securities and we can all be on our way.
But, it seems that the SEC doesn't actually have any process for that to happen. The paperwork either doesn't exist or the process has a gap whereby cryptocurrency security exchange requests hit a cliff with no bridge.
As per Jesse Powell:
“The ‘This is wrong but I won’t tell you how to do it right. Want to find out if X works? Try it and see what happens.’ approach does not help the industry nor consumers. We aren’t anti-regulation but we need a clear path to operate.”[0]
"Oh man, all I had to do was fill out a form on a website and tell people that staking rewards come from staking? Wish I'd seen this video before paying a $30m fine and agreeing to permanently shut down the service in the US. How dumb do I look. Gosh."[1]
Both sides are likely being somewhat disingenuous, but the SEC, given it's role, should never, ever, fucking be disingenuous. And given it's a government department with its... severely chequered... history, then I wouldn't be betting on it having it's i's dotted and t's crossed.
Kraken and Coinbase were established in 2011 and 2012 respectively, so they've been run well enough as businesses to weather three or four cryptocurrency winters that have taken the lives of many others. In an industry with a dearth of trustworthiness[3], these two stand out from that crowd.
They are an 18B company whose business is providing an exchange for legally dubious tokens. Millions is literally chump change compared to that, because once again, their "product" is primarily legal arbitrage.
It's disingenuous to claim that once a company is approved for public listing all of their future operations are outside the jurisdiction of the SEC. What kind of world would that be?
No dog in this fight, but making an investment of millions in some aspect of your business is also not a guarantee that you will see any traction, much less success, with that effort.
Your comment really reveals what is behind the embrace of this criminal abuse of securities law to punish crypto-based commerce: anti-libertarian dogmatism.
You haven't responded to any of the arguments made by crypto advocates in good faith. You've completely ignored the evidence and rationale provided in the complaints, because ultimately the legality of the SEC's actions is irrelevant to you. What's relevant is constraining, punishing and banishing anything associated with libertarianism.
1)Decentralized infrastructure beyond the reach of regulators
Coinbase is something of a collaborationist in this regard. They created a centralized platform and got in bed with US regulators. They've asked repeatedly for, "reasonable regulation".
Reasonable people can disagree about these issues. I know many here are die hard cryptocurrency haters. However, there's no room for synthesis between the original premises of the cryptocurrency movement and "reasonable regulation".
If regulators are not attacking cryptocurrency, is it really living up to the original ideals?
Most people in crypto aren't worried about crypto dying, they're worried the USA is shooting themselves in the foot and missing out on a huge new industry because of incompetence.
Too much money sleeping doing nothing, just luring and scamming people who want to get rich without effort..
That money would be better spent in energy R&D(nuclear/fusion), education, and in core infrastructures, etc..
What a waste of time and energy, literally, taking money hostage.
Just today LinusTechTips youtube channel got hacked and guess by who? people who promote crypto scams.. that's the only purpose of these exchanges, to sell and facilitate scams
Those that work at Coinbase would do better to run for congress, win, then insider trade securities. The SEC would leave them alone in this case because the SEC is a totally corrupt Government Bureaucracy. Brian Armstrong and staff could alternatively direct campaign contributions to the Democrats (I give to the Democrats every year) to ensure they would leave him alone.
Look, for the most part, regulation is good. In theory.
In practice what ends up happening is that regulators come in with measures "meant to protect the people" that also indirectly harm the early adopters. That's why enthusiasts aren't very enthusiastic of getting regulated. Regulators get a bad reputation because most of the time a regulation ends up like this; they are seen as killjoys.
I am not keen on regulation because I cannot trust regulators to do a great job at preserving "the magic" of a technology. Yes, exchanging (and most of the time, losing) value into cryptoassets and scammers are a real thing, as much as money laundering and tax evasion; however, once the black suits come in[0], it's all downhill.
I don't know the alternative, other than letting the code by-laws regulate itself. The very essence of what Bitcoin represents.
--
[0]: I mean, the sad state of regulation nowadays, in which is protecting the best interests and power of the elites.
A single quote from someone isn’t changing years and millions of pieces of evidence of people using and promoting crypto almost entirely as a security by this definition.