We asked the SEC for reasonable crypto rules for Americans
coinbase.com
coinbase.com
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.
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
There are gold bars and there are gold securities.
AZ, IN, KS, LA, MO (pending), OK, SC, TN, TX, UT, WV, WY.
the main reason for these recent law changes appears to be so that tax can not be levied on the sale of gold and/or silver.
[1] https://worldpopulationreview.com/state-rankings/gold-and-si...
It almost seems like there is no regulation nor clear guidance and even different arms of the government can't decide which it is.
https://fortune.com/crypto/2023/03/08/stablecoins-ether-comm...
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?
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).
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"
https://twitter.com/iampaulgrewal/status/1638660032324829184
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.
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 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.
This is exactly what they’re doing. You think they just fired off some press releases in response like some kinda half-informed HN comment?
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.
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.
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.
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.
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.
They are free to leave.
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.
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.
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.
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.
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.
If you can say something like this with a straight face, you're just a bad person.
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?
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.
https://www.jdsupra.com/legalnews/cryptocurrencies-and-the-s...
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
And I find it odd that your referenced article mentions three tests, when it seems to be normally listed as four prongs: https://duckduckgo.com/?q=howey+test+prongs
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.
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.
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.
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.
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.
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.
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.
> 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.
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.
An investment of money In a common enterprise With the expectation of profit To be derived from the efforts of others
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.
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.
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.
You only realize any gains or losses if you sell that 1 eth and eth to usd/some other currency value has fluctuated.
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
My guess is that foreign governments aren’t counted as 3rd parties / promoters?
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.
`ping -i1 www.bcr.gob.sv`...
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."
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.)
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.
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’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.
Same with precious metals, or Bitcoin.
If you bought btc, used it to buy goods, and never cashed it back to usd then I think it is a currency.
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.
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.
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.
You can watch a very interesting recent interview with her here: https://www.youtube.com/watch?v=kvsJM0regpw
Or read some of her recent dissents: https://www.sec.gov/news/statement/peirce-statement-kraken-0...
“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.”
https://recaldelaw.com/do-security-regulations-cover-real-es...
The SEC doesn’t get a vote.
Not everyone cares to 1) sell their house 2) at a profit. Some people just want to live in it and even die in it.
- Criteria #2 is debatable
- They don't meet criteria #3
- Or they don't meet criteria #4
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
> Crypto folks: We want regulatory clarity.
> 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.
[1] https://www.sec.gov/corpfin/framework-investment-contract-an...
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:
https://help.coinbase.com/en/coinbase/getting-started/crypto...
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.
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?
https://help.coinbase.com/en/coinbase/privacy-and-security/o...
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.
They don't call themselves a gambling site.
> They don't meet criteria #3
"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.
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.
You mean it's not convertible to fiat when fiat fails? That's what I mean too: fiat fails.
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.
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.
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.
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.
https://www.coinbase.com/blog/the-sec-has-told-us-it-wants-t...
Coinbase's General Counsel used to work at Facebook. Just a random factoid.
No doubt he's telling us the truth when he claims he had "no idea" why his employer might be sued.
> The SEC has a very loose definition of a security - vaguely...
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.
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.
There's more to an asset being a security than just expectation of profit.
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.
What's special about BTC and ETH that sets it apart from other cryptocurrencies?
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."
Almost every other cryptocurrency has one or a small group of person that can take control of the chain / app.
A business registers with the SEC to gain a license to trade securities. Securities themselves don't register.
Happy to be educated if above is wrong.
ETH is not leaderless to the same degree, and to my knowledge has not been declared "not a security" by the SEC in the same way BTC has.
and in 2018 an SEC commissioner gave a speech in which he said eth was not a security, but the SEC is doing all they can to muddy the waters on that https://cointelegraph.com/news/sec-seeks-to-keep-hinman-docu...
From what I gather the SEC just ignored Coinbase’s questions in this back-and-forth.
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.
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.
Saying "please register" when you really mean "get bent" doesn't count as SEC clarity in my book.
The SEC stonewalled Coinbase at every attempt to submit a registration. It's not like Coinbase registered and was declined.
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.
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.
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 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?
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.
Seems strange kraken would stop supporting the ability to stake ETH if your claim was true. Thats a ton of money for them to throw away just for fun.
SEC rarely does it’s job until it’s too late and only after someone else has done all the work for them.
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.
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?
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 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.
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"
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.
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.
Gary Gensler and Rostin Behnam consider Bitcoin a commodity in the crypto space, so would be regulated by the CFTC.
Every other crypto (probably even Ethereum) is a security, and so falls under the SEC's jurisdiction.
That's what they've been signalling for a while now.
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.
If we’re going to have a centralized third-party controlling our money, why bother?
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.
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.
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.
[0]: https://www.coinreporter.io/2023/02/kraken-co-founder-jesse-...
[1]: https://twitter.com/jespow/status/1624177588074848256
[3]: Because traditional US and global finance is a such beacon of goodness and trust
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.
0)Freedom from central bank hegemony
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?
Coinbase issued Wells notice by SEC - https://news.ycombinator.com/item?id=35267692
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
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.
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[0]: I mean, the sad state of regulation nowadays, in which is protecting the best interests and power of the elites.