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.
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.
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.
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
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).
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.
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
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.
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...
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.
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.
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?
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.
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.