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Comment by H8crilA | Hacker News Reader

The SEC does not block such things because it thinks those are overpriced. The SEC does not care about the price. The SEC did not, and should not have blocked WeWork, to take an example.

What the SEC requires is a registration of the security with the form S-1/F-1. Nothing more, nothing less. If the paperwork is complete they will greenlight this offering.

I don't know why wouldn't they just register. Cut a very tiny percentage of the amount, pay someone to do the paperwork, you can go ahead. But do it with cards on the table, as the securities registration form requires (it's quite extensive and requires, for example, a clear statement of all risks involved in the offering).

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My (admittedly limited) understanding is that registered securities can only be traded on specific exchanges with a special license. Most cryptocurrency exchanges don’t have this licensing, so becoming a properly registered security fundamentally locks you out of this exchange infrastructure.

Not sure if thats actually required, but for sure it makes it easier for SEC to approve a security if it has been already given greenlight by NASDAQ. I would believe the law doesnt dictate marketplaces but in practice the marketplaces enforce more regulation than the actual regulator.

It's the other way around - once SEC blesses something then NASDAQ or NYSE or any other exchange can list it.

NASDAQ is a private, for-profit corporation, not a regulator. I doubt they frequently reject listings, at least in the short term it's in their interest to have as many listings as possible.

In addition - NASDAQ, like all other exchanges, is subject to its own regulatory oversight from the SEC.

With all of that please remember that playing by the rules is not a pure loss. It opens you up to professional/institutional investors. These guys know and trust what the SEC says, far more so than what any random company says.

Also, remember why was the SEC created in the first place - it was after the 1929 crash (which was far more severe than the 2008 crash, see for yourself on a log() chart) and after the great depression that followed.

The time and cost to do an S-1 is massive and it can reveal embarrassing facts that lower the company's valuation, as in the case of WeWork.

Which is, of course, exactly what you want. These rules exist because charlatans bilked a lot of consumers out of a lot of money. The financial industry will do this consistently because the incentives are obvious. There has to be some external force slowing down the fraud.

>> These rules exist because charlatans bilked a lot of consumers out of a lot of money

The rules are made by the "deep state" to serve the establishment.

On a more serious note these rules/regulations/processes also deny access to capital to startups. It's not really that easy or cheap to go public on a stock exchange. People should do their due diligence before to invest in stocks anyway, right?

How exactly does one do due diligence without a substantial amount of disclosure to study?

It's the "embarrassing facts that lower the company's valuation" that matters for a billion dollar offering. The few hundred thousand dollars of legal costs aren't the issue here.

Tradable security: wash sale restriction

Tradable product or commodity: no wash sale restriction

Entire trading strategies change with securities designation, so thats one example above.

Entire free speech restrictions are created with securities designation

Entire accounting restrictions are created with securities designation

And the list goes on

There is no such thing as “just register bro!” It is a designation that carries a lot more baggage than just disclosing some internal company financial statements

Except these are very clearly securities? How could they possibly be a product or a commodity?

You're right, but some people seem to think cryptocurrency is magically exempt from securities laws because they really want them to be.

> magically exempt from securities laws because they really want them to be.

Well when the law gets changed that's exactly why and how it gets changed

Last year, Wyoming has recategorized crypto assets into their own asset classes that is exempts them from state level securities law and others. Because it was obvious to the legislature and governor there that debating commodities, currency or securities status was ignorant.

This year, Montana representatives have also reached the same conclusion.

This year, Colorado's representatives have also reached the same conclusion.

US Congress has a bill in committee mirroring these. It isn't a priority for the House as you might imagine. Holistic US re-imagining of these assets isn't relevant until the Federal legislature reaches consensus.

A week ago Liechtenstein's legislature unanimously reached the same conclusion, which inherits limited consensus amongst all European Union/EEA/EFTA member states.

So yes, people seem to think cryptocurrency is magically exempt from securities laws except the securities regulators that do not mirror the will of the people and are being steered by their legislatures, as designed. Courts lack latitude to lean any other way as well, until the legislature changes the law, which is happening.

I wasn't saying all crypto assets are necessarily securities.... just that these Telegram ones are.

SEC applies Howey Test to determine if a given security is an investment contract (security) and as such must be registered if offered to public.

The test is quite simple: * It's an investment of money * There is an expectation of profits from the investment * The investment is in a common enterprise * Any profit comes from the efforts of the one offering the investment or a third party

Cryptocurrency trading in general could be either but ICOs are clearly in the security category.

I would be curious to see Wyoming etc. try to overturn Supreme Court's decision on SEC vs. Howey. If they are successful it will be the end of SEC and the public markets in the US as we know them.

Re: Liechtenstein. They don't have a stock exchange so they don't have anything to lose.

Nobody is trying to overturn the Howey and more important subsequent Federal court decisions.

The law in Congress will tell the SEC to stop wasting time on this and give a default status for digital asset issuers to exist in that isnt securities. Exactly as a handful of states have done.

Digital asset exchanges and issuers already exist in Liechtenstein. Kindly learn more about that.

Things that are actually securities in liechtenstein are passportable to other European countries that do have stock exchanges.

I think that was a very reductive and inaccurate comment on a multifaceted topic

I said: "These is no stock exchange in Liechtenstein. They have nothing to lose."

Your response: "Digital asset exchanges and issuers already exist in Liechtenstein."

Why do you conflate the two? Is it intentional or due to lack of understanding? L. is trying to make money on ICOs because it does not have anything to lose with regular financial markets.

> I think that was a very reductive and inaccurate comment on a multifaceted topic

And I think that was an attempt to intentionally complicate a simple topic.

Crypto can be used as an investment in a form of an ICOs and that should be registered.

It can also be used as a currency instrument for (mostly illegal) transactions. When used as such it does not need to be registered.

I guess its not clear: Liechtenstein doesn't need a stock exchange because securities - stocks in particular - issued in Liechtenstein are already tradable in countries that do have stock exchanges. People sometimes do this because some their own country might have a withholding tax on capital or other uncompetitive nuances.

You’re right in that they don't have one and have little to lose by creating digital securities and digital assets clarity.

Liechtenstein’s law isn't only about cashing in on ICOs. It covers digital securities as well, which Europe’s other securities exchanges are not equipped to handle.

There is only upside for them to provide a clear framework for digital securities and digital assets, making it easier for an issuer to choose and regulatory clarity for all participants

We speaking the same language yet?

> Liechtenstein’s law ... covers digital securities as well

L's population is around 35 thousand. It's like City Council of Menlo Park CA gaining a status of a sovereign state and then making venture capitalists from Sand Hill Road exempt from SEC rules. L is trying to make a buck by being more permissive because they have nothing to lose otherwise.

> We speaking the same language yet?

I suppose we do. English that is :)

https://medium.com/@straumli/not-blockchain-f569f288b6f1

Yeah, they’ve historically been pretty good at that, making quite a few quick bucks in financial services leading to one of the highest standards of living for a neighborhood acting as a country, and their bilateral treaties are crafty and well maneuvered

Its nice to see people applying themselves very well

Yes its like if Menlo Park was sovereign but also had economic unions negotiated with DC and the rest of North America, you would find that very convenient

I don't doubt for a second that money laundering and tax evasion services are very lucrative. Look at Cayman Islands. Their per capita GDP (PPP) is higher than in the States!

If you are in the business of offering furtive financial services it makes total sense to stay abreast with the times and add crypto to the portfolio. It's a great instrument for both money laundering and tax evasion.

and every other financial service

some of the largest public companies and hedge funds are incorporated in cayman islands. the obvious rebuttal would be that they too are vehicles for money laundering and tax evasion, but also everything else because the point is that you can't distinguish when a state doesn't use its resources demonizing transactions

I find it weird to even try to bring the ICO (which are the engine of fraud and should be anonymous, or otherwise you get to jail anyway) into legitimate space. Someone apparently lost their sense of limits. It's really difficult to comment on someone trying to make a fully legally compliant ICO and get surprised that it's difficult.

Cryptocurrencies exist to move money out of China by circumventing their currency controls (pay miners in RMB locally, get crypto, send it to Hong Kong, exchange into USD). ICOs are a byproduct of that process and exist merely for scam.

Again, i am not against scam. Scam is fine as long as you aren't getting caught - nearly everything in software in scam directly or indirectly. It's just trying to do scam in the open and getting surprising it's hard is what crosses my mental limits of acceptable chutzpah.

Scams and circumventing capital controls are two uses cases.

People want to use ICOs like they use Kickstarter: to fund a consumptive purchase. Digital assets have the capability of being consumptive. There isnt an obvious way to tell them apart, especially when there is a limited supply and exchange of money. People want there to be an easy way to distinguish business models and assets. So thats where experimenting with different legal theories helps.

Legal ICOs are STOs and not surprisingly they have a hard time getting off the ground.

Why downvotes? He is exactly right about crypto (>50% of volume?) being used to move money out of China.

Yes, i agree that they were not invented for that purpose. I think most likely they were invented to make covertly funding U.S. spies abroad, without any paper trail, completely circumventing banking system, easier. It's just what they are mainly used now.

There are cryptocurrencies like Bitcoin who dont clearly have any issuer. On the other hand crypto tokens like telegrams ton has a clear issue. The latter is clearly a security, for the first you first have to find the issuer which cant be found.

Also I would classify ethereum as a security, because they created a token offering initially. After it was launched it was mined, but I understand majority was sold in the initial coin offering.

Satoshi is the issuer. Just because you can’t find the person who started a pyramid scheme doesn’t mean he doesn’t exist.

Just because he created software doesn't mean he issues BTC. Bitcoin by design doesn't grant him any control like that.

Pyramid scheme? Do you even know what does it mean? If Bitcoin is pyramid scheme, so are many others things like stocks, currencies etc.

Stock - you open part of a company

Currency - a state-backed value in which government salaries and bills are paid and in which you pay your taxes

BTC - a somewhat decentralised ledger where most coins are held by a very low number of people and where some of the early folks made massive amounts of money. Not backed out exchangeable by/for anything, with value purely coming from someone else being there to buy it. Great for dissidents, tax evaders and anything illegal - but not really any other case for its existence except among those with a radical distrust in government.

Stock - in theory yes, but look at how massively overpriced they are now. For example, do you think 123B capitalization of Netflix is appropriate to value of company itself? If there was no expectation of stock value going up indefinitely, would it really sell for current stock price?

Currency - you said "state-backed" - backed by what? Forcing it's use by demanding taxes and paying salaries/bills is not "backed".

BTC: "most coins are held by a very low number of people" - can you prove it? Consider that keys to many old account are probably lost.

"Not backed out exchangeable by/for anything" - neither are most/all currencies. Even commodities like gold sell by much higher price that is "backed" by usage of these in industry.

"value purely coming from someone else being there to buy it" - there is some value in being able to transmit/store value

"Great for dissidents, tax evaders and anything illegal" - I would actually say cryptocurrencies are awful for these applications: there are little places where you can pay with them and many will require verifications (and will report significant transfers). Bitcoin blockchain is public allowing tracking of transaction. On the other hand, cash? Accepted anywhere, non-trackable and people are already experienced in money laundering.

"but not really any other case for its existence except among those with a radical distrust in government" - distrust in government seems to be just healthy at the moment (for example, see civil forfeiture and Snowden).

Then there should be a component of the securities act that exempts some securities from some additional baggage of being a security

IRS blanket accounting rules around a security aren’t useful for these digital consumptive assets which bear no ownership of an enterprise

FINRA and Broker dealer related trading restrictions arent useful in digital consumptive assets that are also securities

If the SEC wants some level of consumer/investor related protection, sure some level of financial disclosure can still be mandated

But that holistic approach’t being pursued here and thats why its being avoided by the whole industry because a securities designation wrecks the entire consumptive aspect of these assets.

How are these securities? There's no profit redistribution. Claiming these are securities is like claiming trading cards are a security.

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