“But the SEC let us go public” and other flawed arguments in Coinbase's defense
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Can someone knowledgeable here clarify if this really is the crux of the problem?
The previous HN thread seemed to mainly be of the opinion that Coinbase wasn't registering the non-Bitcoin crypto, but that the problem was the SEC wasn't giving clear guidance on whether they needed to be.
But I don't understand what ramifications that has. Why didn't Coinbase just register everything non-Bitcoin? Would that have limited/destroyed its business model in the way the quote above suggests?
Edit: thank you so much to all the replies so far! This is incredibly helpful.
Little outdated (2020) but: https://screenrant.com/lootbox-gambling-microtransactions-il...
[actually the history of pinball and other arcade games is fraught with legal action, there were a few iterations of payout before we got to the harmless, kid-friendly machines of today, really good podcast about it, interviewing the guy who heads the Pacific Pinball Museum: https://art19.com/shows/the-madecast/episodes/6753c3e6-e12d-...]
"Kid-friendly" but really kid-robbing, though - AFAIK most of arcade games that let you win something, e.g. a toy, have subprograms that can override your victory, making it look like you've lost; those are triggered randomly, based on venue-configurable parameters like "max winning rate" and "daily wins threshold". This is designed to ensure the venue always makes a profit, by turning what's advertised as games of skill into games of luck.
What really angers me about this is not even that the nature of these machines isn't advertised to, or generally known by, parents and children, but that the way those overrides are implemented, they're quite literally gaslighting children (and for kids playing on such machines way too much, it's likely ruining their hand-eye coordination). There are many slow-motion / high-framerate YouTube videos demonstrating how these arcade games will fake input delays to turn perfectly timed win into what seems like split-second loss. And don't get me started on the fuckery that goes on with those "toy claw" games.
I feel there's something deeply corrupted about screwing up with children like that. I mean, when my kid starts playing a game and thinks she got good at it, and wants to show me how good she is, and then the software override kicks in and the game lies to her that she lost, what am I supposed to say? Gaslight her further by saying it was bad luck or still big enough of a challenge - when I know perfectly well the real reason is a bunch of greedy adults with broken moral compass adding a biased RNG to what they advertise as pure game of skill?
I worked in an arcade growing up, and you're not wrong about a lot of them--but pinball doesn't fall into that bucket. Every pinball machine I've ever seen is played pretty straight. Sometimes they have nasty game mechanics, but they don't have the issues you describe here (which is much more in the pseudogambling, Dave and Buster's style of games).
Of course the gap between these is closing by the introduction of lootboxes and similar mechanics. I do think these should be regulated as it aligns the incentives to get people addicted to your game, which is a fairly basic variation on preying on the vulnerable. In addition I -- and I assume most people -- do not like getting treated as a money piñata.
The organizations that created the assets have to register them as securities, Coinbase didn't create the assets.
A broker-dealer (a securities exchange) can only trade registered securities, broker-dealers have to register to exist. So even if Coinbase went through the process of registering as a broker dealer (to be a securities exchange), they could not trade unregistered crypto securities, and cannot unilaterally register things they didn't create as securities.
Registered crypto securities are a mixture of non-existent, or not the things people want to trade. There are zero popular registered crypto securities.
Those organizations with those "unregistered securities" quote on quote, also don't believe they are creating securities at all, just digital products, cryptoassets. A distinct asset class. This should be possible to do compliantly, but it is also not clear how to do so or where the line is.
Regardless, those organizations have not been approached by the SEC saying "hey you created unregistered securities and sold them, we're suing you".
The SEC has indeed tried a couple of those cases against different crypto assets and their creators and had mixed results, the well funded ones are dragging the SEC through court for half a decade now, for a single case. While the number of crypto assets continues to balloon every single day.
So the SEC changed its strategy recently and started suing exchanges using circular logic, claiming assets that they never said were securities to be securities and saying "these are unregistered securities and you are trading them in violation of Federal Securities laws", having never proved in court that these were securities.
You're describing the procedure of proving in court that they're securities.
The SEC claims they are, sues someone over it, and they fight it out with them in court. The court decides who proved what.
After getting an agreeing verdict on that they would go to the promoters and exchanges and sue them too
Now they're skipping that and going straight to the exchanges, because the SEC wasn't exactly winning
There are defenses to the SEC’s approach as it has nothing to do with the remoteness of some issuers, it has to do with the shaky legal ground and symbiosis that the SEC has relied upon. The SEC’s standard can be equally applied to anyone that purchased a baseball card hoping to flip it, where that unilaterally makes all shops and ebay to be unregistered securities exchanges in violation of Federal Securities laws no matter what the baseball card company did to ensure otherwise. Either all consumer product industries and intermediaries are affected, or most crypto tokens aren't at all. Or there is a clear way to make a crypto token that fits into the consumer product framework exclusively, but the SEC wont say and says “its always been clear”. Thats pretty much where we are, based on the SEC’s own logic used in this very case.
No; the baseball card market fails various bits of the Howey test. If you sold shares in a baseball card collection, that might be a security.
https://www.sec.gov/corpfin/framework-investment-contract-an...
> When a promoter, sponsor, or other third party (or affiliated group of third parties) (each, an "Active Participant" or "AP") provides essential managerial efforts that affect the success of the enterprise, and investors reasonably expect to derive profit from those efforts, then this prong of the test is met.
In the baseball card market, the card manufacturer could cease to exist without the success of the enterprise being impacted. (This is why BTC and ETH are currently being treated by the SEC as non-securities; the original creators of both could vanish without impacting the market for the coins, which is much less true for most coins.)
while a promoter, sponsor, or other third party could pop up at any time.
it says nothing about manufacturer or issuer for that prong of the howey test.
and the same is true for all of the tokens listed in the case against Coinbase.
I guess your argument is based on looking for differences to support your worldview instead of looking for similarities, and its not clear if you're aware of the similarities.
The "manufacturer" disappearing from tokens makes them more scarce in many cases. Their functionality remains the same.
another thing you might not be aware of is that the SEC is aware of this. Other commissioners - specifically Hester Pierce - and enforcement division personnel has made this observation, the people calling the shots in the enforcement division and the head commission are avoiding this because it breaks their whole framework if the courts really feel compelled to break this down more holistically. Thats why their approach to unilaterally calling things "evidence" when they haven't even proved they are evidence is a weak evolution of their practice. Prolonging an inevitable challenge to their authority and aspects of their existence.
Coinbase wouldn't be the one to register the security - the company offering the security would be the one registering it. Coinbase may have some securities of its own - but it is unlikely that it would be able to provide the necessary information for much of them or take on the necessary responsibilities for providing the auditing.
https://www.investor.gov/introduction-investing/investing-ba...
The registration forms a company files with the SEC provide significant information, including:
A description of the company's properties and business;
A description of the security to be offered for sale;
Information about the management of the company; and
Financial statements certified by independent accountants.
> In order to register a security under the Securities Act, a company must file a registration statement with the SEC. Typically the type of registration statement used for an initial public offering will be a Form S-1 Registration Statement (Form S-1). A Form S-1 includes two parts (Part I and Part II). Part I is the prospectus, the legal offering or “selling” document. In the prospectus, the “issuer” of the securities must describe in the prospectus important facts about its business operations, financial condition, results of operations, risk factors, and management. It must also include audited financial statements. The prospectus must be delivered to everyone who buys the securities, as well as anyone who is made an offer to purchase the securities. Part II contains additional information that an issuer does not have to deliver to investors but must file with the SEC, such as copies of material contracts, signatures of management and other representations.
Most organizations providing cryptocurrency based securities are unable or unwilling to provide the required information.
Some key takeaways: For historical reasons as well as practical ones (who would you sue) BTC and ETH are probably considered commodities. Most of the rest are very similar to ICOs which were securities and rife with fraud. But you can't really go after the issuers very easily for a lot of reasons. But there are two parts to the SECs laws. One part is the issuance of secuirties, the second part is the brokers (or in this case exchanges). FTX, Binance, Coinbase, do things that would be illegal to do with securities (conflicts, lack of disclosure etc.). The SEC is just pointing out that most coins are securities and what they are doing is illegal under current law.
https://news.bloomberglaw.com/mergers-and-acquisitions/matt-...
They crowdfunded $18M and used that to develop and issue tokens. It was clearly under their control at the time.
Again, I don't know anything about the creators of ETH, but they may have a better defense of their actions then-- say -- Sam Bankman Freid.
It exists, in theory. Many people have tried, nothing has progressed even an inch. It's not even a matter of the SEC putting out a list of clear conditions that people deem unacceptable. Instead, the applications just seem to be mired in bureaucracy.
As I understand, there is deliberate gaslighting from the SEC and Gary Gensler.
Gary keeps telling the media "the law is clear" and "companies should come and register", but then never answer's even congress' own questions on what constitutes a security, and makes it impossible for crypto projects to register.
It has similar vibes as the US law which only allows accredited investors to invest in fast growing startups... 'To protect mom and pop investors' yeah right. Is there even a single person in the entire country who actually believes that?
For some reason, people seem to think an ITO should change all the rules, and that first you sell to the general public, and then you figure everything else out (assuming you don’t just take the money and run). This is IMO nonsense.
It's the legal advice and accounting specialists required to produce an adequate prospectus that's the big cost. But again: if you're raising millions, it seems not unreasonable to front some of that, even as personal debt, in order to prove "skin in the game" and that it's not a scam.
EOS raised $4.2 billion dollars. You're telling me they can't front 60k?
Keep in mind certain crowd-funding is legal in US.
Uber seems to be successful despite clearly (IIUC) breaking laws that regulate taxi services.
If it worked for Uber, I can see why other businesses might have similar hopes.
If it's the speed of it, I can agree that the government is slow, but it's generally accepted as the cost of doing business in a regulated sector that you wait for regulatory approval before proceeding. There's work to be done making things more efficient, but in the meantime everyone still needs to play by the rules.
If it's missing information that the SEC is demanding, that information is required for a reason. If it doesn't apply to your token, maybe your token is broken by design?
Everything about this screams "system working as designed to protect the public".
Would you kindly point out a company that tried and failed to register an ICO? I have done a little research and been unable to find any that even went through the motions. Perhaps the specifics matter.
This is, quite simply, zeitgeisty prejudice. Most well-funded cryptocurrency companies have passed audits. I've worked for or with four crypto companies and three of them were audited (also all of them still exist).
You aren't allowed to count "fraud cryptobros from miami creating an ICO" if you don't count "fraud fratbros from harvard/yale creating a hedge fund". And if you do count both, then you'll notice that the proportion of fraud is roughly the same everywhere, we just allow ourselves to notice it in some places more than others.
> Why should the SEC bend over backwards to create new rules
Because you don't apply old rules to new contexts if you're a responsible government, especially if you're claiming jurisdiction over those new contexts. Registration and filing processes created for the paper era simply don't cut it for regulating self-executing financial instruments. Why doesn't the SEC have a registration smart contract? It is the SEC's responsibility to adapt to the times.
> Would you kindly point out a company that tried and failed to register an ICO
What do you not understand about "there is not process"? I've been a part of two companies who have tried. We have had "conversations", aka we try to reach out and a different attorney occasionally gets back in touch with us and rehashes the same conversation every six months. The longest effort went nowhere in four years. There is no registration, there is no process, there are no boxes we can check on the existing forms which govern what we do.
This is true in practice but untrue in spirit. Any nonsense project can pass an audit by hiring an equally nonsense auditor.
> You aren't allowed to count "fraud cryptobros from miami creating an ICO" if you don't count "fraud fratbros from harvard/yale creating a hedge fund". And if you do count both, then you'll notice that the proportion of fraud is roughly the same everywhere, we just allow ourselves to notice it in some places more than others.
This is blatantly untrue. Yes, there are plenty of forms of fraud which occur in hedge funds, but the public is shielded from many of these, because the most obvious forms of fraud were recognized and regulated decades ago. There's practically no such protections around crypto, and as a result, a whole host of obvious scams have flourished.
If you talk to almost any crypto investor, most of them have been scammed at some point. The same is not true of investors in traditional markets.
You can absolutely legally register your cryptocurrency as a security. The requirements just make it a non-starter.
There's is nothing inherently different between cryptocurrencies and securities. The accounting is irrelevant. If you promise people that their money will increase in value if they invest, then you need to register as a security if you want to sell to retail customers. You can continue selling the unregistered securities all you want to professional traders.
Disclaimer: I work on STX and its blockchain
There is mountains upon mountains of evidence that show that the SEC is biased towards crypto and that killing it will be done by way of confusion and corruption through dumb lawsuits.
Is there a blog somewhere put out by one of these companies with their back-and-forth? It would be informative reasoning.
Disclaimer: I work on STX and its blockchain
[1] https://www.sec.gov/Archives/edgar/data/1693656/000110465919...
So they did make token sales, and complied with the "accredited investor" rule.
Yes there is. You register them as securities. STX[1] did this. Other projects need to suck it up and do it legally.
[1] disclaimer: I work on the Stacks blockchain (STX)
and...
> The previous HN thread seemed to mainly be of the opinion that Coinbase wasn't registering the non-Bitcoin crypto, but that the problem was the SEC wasn't giving clear guidance on whether they needed to be.
See, this is why we need regulation. It's to deal with people like the HN crowd who will go up to the limit of the law with no consideration for ethics whatsoever.
A normal, ethical person would never run into the problem Coinbase has here. They'd see that the differing parts of their business had conflicts of interest which were pitting them against their own customers, and they'd do the right thing by splitting them up so that their customers are served. The law never has to get involved, because good people don't need the law to tell them to do the right thing.
But contrary to the end-stage capitalist beliefs of HN, corporations are not good people. Capitalism doesn't result in the best service for the lowest cost. If there's any way at all that corporations can make a profit by screwing over other people and getting away with it, they will, or someone else will. Without regulation to limit this, bad people bubble to the top. Coinbase has plenty of smart people who could have noticed the ethical problems here, but they didn't, because they didn't care. Coinbase has been successful monetarily because when they had a choice to do what's right or what's profitable, they chose to do what's profitable.
And as is typical of HN, the top comment identifies with the bad guys. The problem, in your eyes, isn't that what Coinbase did caused conflicts of interest which harm consumers. The problem, in your eyes, is that regulation wasn't clear enough for Coinbase to know exactly which conflicts of interest they could get away with. Like Coinbase, you're unconcerned with ethics, instead blaming regulators for getting in the way of the only thing you care about: profits.
This place has a serious problem.
> Gensler firmly maintains that the vast majority of crypto assets are securities, with the exception of Bitcoin
Why? From an article on Reuters[1],
> Bitcoin is not considered a security because its anonymous and open-source origins mean investor profits are not dependent on the efforts of developers or managers, said Carol Goforth, a law professor at the University of Arkansas.
How is this different from, say, Ethereum? What about when changes to the Bitcoin network are done (either directly e.g. bug fixes or indirectly such as hard forking), does this not count as "efforts of developers or managers?"
^1: https://www.reuters.com/business/finance/what-makes-crypto-a...
If you believe that Ethereum currently represents "an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others", then it is a security. If not, then not.
The Howey test would be applied to the status of the asset at the time of the alleged violation of the law that is being prosecuted.
People are going "well they say BTC and ETH are OK, why not this random shitcoin?"
The answer is "ETH wasn't OK when it was still like said random shitcoin".
Right now everyone is guessing why exactly the SEC considers most of the top 10 coins to be securities, except Bitcoin, with Ethereum apparently in limbo. Most importantly, it leaves companies guessing whether they'll have to wage a bankrupting 50-million-dollar lawsuit against the SEC to try to defend themselves if they launch a coin they believe not to be a security, but that the SEC later classifies as one through their opaque reasoning process.
I mentioned it in a comment above, but the SEC needs to release something like a 10-step process for determining whether a certain crypto is a security. Something that's clear enough that a company's lawyers can apply it to their products to determine without a doubt whether they are in compliance with the law.
To me, that sounds like a centralized team employing centralized decision making.
The vast number of users, or at least, those who run their own node, choose to run a forked version of the client software that activated a contentious upgrade (the upgrade was Segregated Witness).
Only after the fact, this code was merged into the Core branch.
That's incorrect. The code was merged into the Core branch first. The protocol change was initiated by the developers, not by the users.
Exactly the same way you fork a non-security. Security is a legal designation, not a description of how a particular asset is implemented (in a forkable structure like a blockchain).
> What is the common enterprise when forking a PoW chain?
The developers/promoters of the fork, potentially.
In Ethereum, a centralized group of people put together a public sale of the token, promising great returns in exchange due to their visionary ideas. This is all perfectly fine, except they didn't register their sale as a security and companies touching Ethereum and other tokens continue to not follow security rules; which involve for instance disclosures about ownership and conflicts of interest. Ethereum is an extremelly centralized business with a few key figures with an interest in the appreciation of the asset, advertising it illegally to a US audience without following US laws.
If I write a book with visionary ideas that promises to change your life (great returns) and continue to work on revisions as I come up with new ideas - should I register it as a security before I can sell my book?
The whole concept of securities laws makes little sense if you try to expand its reach beyond narrow traditional finance use cases... if even those cases make sense in the first place.
Might be better off repealing all this complexity/bureaucracy and better enforce existing generic laws about theft/fraud...
I also wonder how does it work with one-of-a-kind collectibles, such as old letters written by famous people, paintings, rare/unique coins, ..., and NFTs.
Is there an expectation of profit in those buying your book? No? Then it’s not a security.
It’s a multi-prong test. Investor protection laws are substantial; everything is constantly being challenged in courts as a security.
The development of Ethereum is more decentralized than the development of Bitcoin. Bitcoin is primarilly developed by Bitcoin Core while Ethereum has multiple client implementations.
Anyone can join the Core Devs meeting and discuss new features and push back on ideas. You can also propose these features outside of the core dev meetings and never attend that meeting if you don't want to.
New ideas aren't centrally proposed and are handled by raising an EIP and getting support for it, just like BIPs in Bitcoin.
For example, EIP 1559 was dead for years until a community member decided it was time to push it and worked with many different people to present it in a way that convinced multiple teams to implement it in their client.
The validators can always reject a change just like Miners can reject changes to Bitcoin clients. The big difference is that Bitcoininers don't have many clients to choose from, so they have to be more willing to accept whatever Bitcoin Core implements.
The bug difference between BTC and ETH from the SEC perspective is the initially issuance being an investment of money, and whether PoS is a return on investment or if running a node is similar to running a PoW node and you're providing a service and not simply expecting a return. In other networks, you can "stake" without running any hardware and that's clearly different than Ethereum's PoS model.
Bitcoin started out as a toy with no value, even perhaps a proof of concept, which eventually gained value and began to be traded. Even years after its' creation people gave it away for free, there were faucets. The creator disappeared and the protocol intentionally has been designed in such a way that making changes is difficult and there's a lot of veto power by users.
Ethereum has nothing like the same origin story. There was an expectation of value from the beginning, Vitalik is still around, and there are often huge centralized changes like PoS, the DAO rollback, etc.
Ethereum was the first token sale. There was no precedent established at the time of people profiting off of token sales. The token sale agreement explicitly said not to expect a profit. It was treated by participants as more of a kickstarter to crowdfund the launch of a new kind of decentralized computing platform.
Going off tangent: if a token sale explicitly states that participants should not expect to profit, then the SEC should have no jurisdiction over it. Securities laws, as is, are already severe limitations on the right of adults to freely contract. To then shoehorn tokens - that represent no equity and make no representation of giving a claim to assets - into being subject to securities laws, is just egregious suppression of basic rights.
That's not true. The first token sale (ICO) was Mastercoin, 1 year before Ethereum's ICO.
https://www.bloomberg.com/opinion/articles/2023-06-07/when-i...
"Some of them did securities offerings, but by the time the SEC noticed they were too entrenched and decentralized and it would have been a pain for the SEC to go after them. Ethereum, most notably, very very clearly did an ICO in 2014, raising about $18.3 million by selling ETH tokens. If they did that today, or in late 2017, the SEC would have some serious questions. But by the time the SEC got around to cracking down on ICOs in 2017, Ethereum was big and decentralized and the SEC would have had a hard time, practically and legally, challenging its 2014 ICO. And so everyone sort of grudgingly concedes that ETH is not a security."
The House Financial Services Chairman asked Gensler (Head of SEC) point blank half a dozen times whether Ethereum was a security.
Half a dozen times, Gensler refused to answer. :/
I do sympathize with anyone trying to get clear requirements in black and white terms of what is and isn’t acceptable .
I think this is more of a systemic failure.
And note: Congress has the opportunity to reject rules passed by an agency that it determines conflicts with the intent of the governing law(s).
There should just be a letter of the law , analytical meaning branch of government.
> There should just be a letter of the law , analytical meaning branch of government.
I don't think that's a thing that is possible. You can't write laws to cover every possible case, and writing them to be "self-interpreting" would be an extraordinarily difficult thing. Interpretation will always be required.
> The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently.
There are numerous other possible reasons it took this long for the SEC to take action, other than the system being overly complicated or inefficient (lack of workers, bigger fish to fry [prioritization], the evolution of Coinbase into less of a commodities trader and more of a securities trader). Complications and inefficiencies usually require additional time and effort, but additional time and effort is not an absolute indication that something is complicated or inefficient.
I disagree with this assessment, but reasonable people can hold differing opinions on this.
Is it reasonable to have them be completely unambiguous in every circumstances? No.
Is it reasonable to have them be unambiguous in the vast majority of circumstances? Yes.
People who push that kind of system know this, and want the system to be hamstrung by exactly that situation. They want a system that can only outlaw their new, explicitly harmful scheme after an entire game of politics in congress, such that they could prevent something becoming law by encouraging the already bad stonewalling in congress. They want government agencies to be so bound up by poorly written law that they cannot administrate at all.
We both have to work in reality.
This is called "a court".
(There is a particular phrase for "the law is unclear so I'm going to sue the regulator in advance to determine if something is legal", but I've forgotten it. It's linked to judicial review)
> The SEC is not part of the executive branch.
> It is an independent agency
https://en.m.wikipedia.org/wiki/Independent_agencies_of_the_...
Not according to the government, and they're the horse's mouth on this.
> SEC commissioners are nominated by POTUS and confirmed by the senate
This is correct, but not really to the point.
> Not according to the government, and they're the horse's mouth on this.
I'm guessing that you are confused about the phrase "independent agency". Or possibly you're remembering cases like Lucia v. SEC where certain SEC staff were (unsuccessfully) challenged as not conforming with the Article II appointments clause. The insulation of these sort of agencies from direct presidential oversight continues to be a source of debate in conservative legal circles, but where these agencies sit in the constitutional order is not remotely controversial. They're not part of the judiciary and they're not part of Congress so they can only be part of the executive.
> The executive branch also includes executive departments, independent agencies, and other boards, commissions, and committees.
> The SEC is an independent federal agency
QED.
More to the point, congress lacks the ability under the constitution to create government structures outside the three branches. The language establishing the SEC makes very clear that its structure conforms with how Article II defines the executive branch:
> There is hereby established a Securities and Exchange Commission (hereinafter referred to as the ‘Commission’) to be composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate.
> he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law:
The SEC is established and appropriated by congress, staffed by people who receive government paychecks, led by presidential appointees, etc etc. I'd be interested to know whether you think it's either
- not part of the US government
- part of a different branch
- part of the US government outside a branch that the constitution specifiesThe legislative branch can demand particular action from the SEC, albeit indirectly, by altering, passing, or revoking the laws that the SEC is tasked with enforcing.
"Independent agencies exist outside of the federal executive branch. More specifically, the term is used to describe agencies that, while constitutionally part of the executive branch, are independent of presidential control, usually because the president's power to dismiss the agency head or a member is limited."
Congress explicitly delegated these authorities to these agencies as part of the administrative state overhaul in the beginning of the 20th century. The reason was to help become more responsive, and less beholden to daily politics by putting neutral experts in charge, and by and large it works. Safety and security shouldn't be party politics.
The legal profession writ large (including legislators) consider this a feature, not a bug. The reason this is the legal profession's opinion essentially three points:
1. You can't write "bug free" laws and regulations
2. Fixing mistakes in laws and regulations is slow
3. The amount of damage someone can do with unintended legal cover can be catastrophic (imagine if I found a legal loophole to take possession of your home!)
So this has been chosen as the "least bad" solution. My personal opinion is that the SEC is acting within the spirit of the law which is what we should expect and if congress wanted to change things they should pass a new law.
I understand the spirit of the law, but I do not feel like that can override an analytical interpretation.
You may feel so, but our entire legal tradition is based on the idea that this is not the case. In fact, no active legal tradition I'm aware of nation holds strictly to analytical interpretations of its laws. This is one aspect of the world it's better to accept as a fact of life, I believe there's good reason it's what everyone has settled on.
I believe that this situation may be a failure of that way of working.
I don't doubt that the process could be improved, but insulating decisions about how to protect investors from political interference sounds like a fine idea.
In this situation, there exists a law that was passed by Congress. Coinbase is breaking that law. Is it not the executive branch's role to enforce that law?
> clear requirements in black and white terms of what is and isn’t acceptable.
This document dates from 2019 and lays out in detail what constitutes a security wrt cryptocurrency from the SEC’s perspective. They’ve been quite clear about this for a long time. The relevant case law has been settled for 70 years.
https://www.sec.gov/corpfin/framework-investment-contract-an...
The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins traded on coinbase that they believe to be securities. Here’s an example from last year from an insider trading case.
https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1...
> For example, on November 12, 2021, Ishan learned that Coinbase would soon announce the listing of the crypto asset POWR. As alleged further below, POWR was a crypto asset security
> A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include “investment contract,” i.e., if it constitutes an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others.
> Coinbase planned to announce the listing of crypto asset AMP on its platform. As alleged further below, AMP was a crypto asset security.
> Coinbase intended to announce on July 14 that the RLY token would be listed on its platform. As alleged further below, RLY was a crypto asset security.
The real issue is that cryptocurrency companies hoped they had found a loophole —they wish the law and SEC guidance weren’t what it is, and they keep dishonestly claiming a lack of clarity exists in the hope that doing so will change things.
It's a security. Just because you called it something else doesn't mean there aren't laws or guidance on how to register it. They just don't want to.
Everyone into crypto parrots the "they won't give us guidance" line without even doing 5 minutes of research.
The head of the SEC was asked point blank multiple times if a little thing called "Etherium" was a security.
He refused over and over the opportunity to be clear and certain.
If your company wants to know what is and isn't a security, that's up to your legal department to put together a working theory, one you think could win in court if the SEC sues you. Judges are the only people who get to clarify law without writing new law.
Gensler could be fired tomorrow and the only change would be the case getting dropped, but that wouldn't make Coinbase and others compliant, any different than states with legal marijuana are compliant with the law.
He literally does.
Hence the "SEC Rulemaking Process." [1]
[1] https://www.sec.gov/oig/reportspubs/aboutoigaudit347finhtm
This is just the reality of operating in a grey area. If you believe you are in compliance with the law, and the regulators disagree or otherwise are giving you a hard time, then the matter WILL be settled by the courts or congress. Importantly, if Gensler comes out tomorrow and says "No tokens are securities, trade anything you want, we won't go after anyone", that isn't binding, and it doesn't change the law, and the next head of the SEC is still free to take you to court for being in violation of the law.
True, administrative laws are not permanent, but when they want to change things, they need to follow a certain process under the APA. Particularly relevant to the case at hand, where Coinbase argues that the APA process needs to be followed - https://assets.ctfassets.net/c5bd0wqjc7v0/5PWsXaPsqQ61gA9wlF...
Coinbase is not being sued for being an Ethereum exchange, they're being sued for
- operating an exchange, broker, and clearing agency for specific tokens that easily fail Howey (which their internal rating framework unambiguously found to be securities)
- offering and selling their own securities via their Staking program
* Coinbase is deliberately doing things that are against the law.
* The SEC is being deliberately vague/unhelpful.
Is a loss for Coinbase a company-ending event? Or is being forced to register all the coins that aren't BTC or ETH a costly regulatory burden?
What are the implications of registering all these coins as securities? Does it affect whether they can be offered to non-accredited investors? How expensive is it? Who bears the costs?
We don’t do that kind of thing in America except for the occasional Enron when extreme levels of fraud are involved and someone takes out California’s electrical grid to boost profits.
IANAL but these SEC violations don’t seem to fit the bill.
The courts found their business model and technology fundamentally illegal.
I suppose they can keep the office cafeteria open.
So the SEC is saying "You are an unregistered securities exchange"
And coinbase is saying "Please give some kind of route by which we could possibly be compliant given the nature of cryptocurrencies"
And the SEC is saying "We have no obligation to give you such a route, just as we have no obligation to provide such a route for criminal black markets"
Who you interpret as being unreasonable here depends on if you think crypto is closer to the black market example, or if it's closer to being like regular securities but with a few tweaks to the rules to make it work.
Why is this?
Thanks for the other detail you provided.
All of VC happens with unregistered securities.
Accredited investors make an exception.
https://www.sec.gov/about/about-securities-laws#secexact1934
[0]: Securities Exchange Act of 1934, Rule 15c3-3
[1]: https://www.sec.gov/news/public-statement/joint-staff-statem...
[2]: https://www.risk.net/investing/7956492/crypto-custody-faces-...
- comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin. What message is SEC trying to deliver? That holding Bitcoin via futures-based ETF is okay but crypto itself is scam? Kafka couldn't have invented a better plot
- scare quotes when saying “tyrannical” Gary Gensler - tyrannical is an apt description of Gary. See the previous point about kafkaesque treatment. Also see the congressional testimony where the dude didn't even have a clear answer about the status of Ethereum, which is bigger in market cap than 90% of S&P500. Talk about protecting American consumers!
And the S1A https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c947576...
In particular:
> Bitcoin sparked a revolution by proving the ability to create digital scarcity: a unique and finite digital asset whose ownership could be proven with certainty. This innovation laid the foundation for an open financial system. Today, all forms of value – from those natively created online such as in-game digital goods to traditional securities like equities and bonds – can be represented digitally, as crypto assets. Like the bits of data that power the internet, these crypto assets can be dynamically transmitted, stored, and programmed to serve the needs of an increasingly digital and globally interconnected economy.
> Today, we enable customers around the world to store their savings in a wide range of crypto assets, including Bitcoin and USD Coin, and to instantly transfer value globally with the tap of a finger on a smartphone. We provide companies with new ways to transact, incentivize, and reward their users, from offering compounding rewards on savings that pay out by the second to compensating users for virtually completing tasks through global micropayments.
The claim is that they're selling assets and traditional securities that are represented digitally.
And they acknowledge the risks of future regulation:
> • We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.
> ...
> • A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected.
The 'i's are dotted and the 't's are crossed. Is the SEC to evaluate those future possibilities that the assets they claim (in addition to Bitcoin) may be considered securities? Coinbase said its a risk and, well, yep - it is.
Did you read the article? Specifically the part where it explains why the SEC does not evaluate the business models of companies?
Did you read it?
Call a police department and ask them if you are allowed to bury your recently deceased relative on your property. They will tell you to get a lawyer. If they feel like arresting you for illegal disposal of human remains you can't use the defense 'but I asked them and they wouldn't tell me'.
Example: 'Would it be fraud if I bought an Amazon gift card with my credit card and sold it for cash since that would be a cash advance but it went through as a regular purchase?'
Would you expect that the FTC answer that question for you in a binding way?
Note: by 'you' I mean if you were in the position of a regulated entity.
The SEC is not deciding what is legal or not, they're deciding whether or not to bring an enforcement action. The court decides if that is legal.
They have muddied the waters with their public comments.
Hopefully these lawsuits will provide better clarity or we'll have to wait on pending legislation to provide clarity on how the US views decentralized asset classification.
Yeah that part doesn't make sense. A "merit-based judgement" that requires that kind of expertise is obviously not what is being asked for! The request is for them to look at [sufficiently big] securities [or possibly-securities], in the exact same way they would look at them post-IPO, using their normal realm of expertise.
The SEC saying your S1 and IPO offering is probably kosher isn't a carte blanche to then do whatever you want without continued regulatory oversight.
It's also possible for the Coinbase S1 to contain descriptions of things that are currently not known to be illegal, and which subsequently become illegal, without any changes on Coinbase's part.
They also list this risk in the S1 as well!
In this case they would’ve been content with the disclosure that the entire business was at risk of being regulated, which is what’s happening here.
The earlier they act, the better, and right before IPO is the most impactful time they could intervene.
> In this case they would’ve been content with the disclosure that the entire business was at risk of being regulated
They don't have to do it, but they could make that risk disappear and it would be very good if they did so. So I wish they did have to make those decisions, unless there's some huge downside.
In most cases that’s what you want. The Communications Decency Act was written way too early and most of it was struck down, except the important section 230. When the Food, Drug and Cosmetic Act was revised in 1962 a huge swath of previously approved drugs of longstanding experience (e.g. aspirin) were grandparented.
Most cases. Nuclear reactors are a good counter example.
I consider cryptocurrency mathematically interesting but otherwise arrant nonsense. Nevertheless I think the “wait and see” regulatory approach, while frustrating, was the right one: don’t stop it (so people can innovate) but don’t provide the protection of widow-and-orphan rules until it has had time to develop. After all, perhaps there is a pony in there, and early regulation could have strangled it.
The SEC did the right thing when suing Ripple, but they've missed opportunities to go after bad actors who were misrepresenting their product as a decentralized network, and now retail investors will be the one who lose.
In my opinion, they've failed to act in a reasonable time frame and their inability to do their job will end up hurting common people in the US. I'd like to see Gary Genslar held accountable for his mistake. It's not like he is ignorant around crypto assets and he even evangelised his friends blockchain network to his students when he was teaching at MIT.
The pertinent laws have been in force since 1933 and 1934, and the Howey Test since 1946. I'd call that regulation prospective enough. Not the SEC's fault that Coinbase preferred wishful thinking (I mean, it sort of worked for Uber).
So uh, you know you just described the opioid crisis in a nutshell right?
Modern opioid painkillers are in fact generally if not entirely accurately, 'heroin based products.' Not just that, prior to the Narcotics Tax Act of 1914 it was kind of a free-for-all, Bayer was selling heroin too! Opium was used to settle fussy babies (note, I'm sure it was very effective). [1] They were approved by the FDA. Then, of course, the FDA went after the makers of these drugs and tightened access to the drugs themselves.
[edit] If I were to offer a generous interpretation of the actions of the SEC, it would be that they didn't want to be seen as killing innovation in the crib. They gave crypto latitude, and then they decided they really didn't like what they saw. It's kind of a 'damned if you do, damned if you don't' thing - you either kill it early and get reamed for that, or you let it fester and get blamed for ever having allowed it at all.
[1] https://gizmodo.com/when-opium-was-for-newborns-and-bayer-so...
The FDA did not exist until 1930. Even if you count the predecessor agencies they did not 'approve' drugs. They were tasked with fraud prevention (selling things that weren't what they claimed to be) and safety in the sense that the product wasn't poison, but not with ensuring that the thing it claimed to be was actually safe. The legislation which gave the FDA authority to restrict drugs to prescription use and require safety and efficacy approval was the Federal Food, Drug, and Cosmetic Act which was passed in 1938.
[1] https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?ev...
In central/eastern Europe, there was historically brew/tea being done from poppy heads, to calm down babies. Generally poppy growing is very much allowed in places like Slovakia and Czech republic and part of many cakes and pastries, and nobody thought about doing opium/heroin out of it.
But go over the border to Poland and its all banned, just like most of Europe, for obvious reasons. Imagine raising a really fussy kid as opium addict in medieval ages...
I can't speak for all of Europe but here's how it works in Germany: Poppies aren't banned, poppies that can be used to produce opioids ("opium poppies") are. Likewise hemp isn't banned in most of Europe, hemp that has a high THC content is. Actually hemp is more strictly controlled (e.g. you need a license to grow hemp at all and high THC hemp is banned outright) whereas you'll find poppies grow by the wayside or sold at florists - unthinkable for hemp. In Germany (like Poland) poppy seeds are also a staple for bread and sweet pastries, so you'll find them in the baking section of most supermarkets (tho they're likely no good for growing).
Also a fun fact: poppy seeds can set off drug tests so if you know you are going to take one, it's recommended you don't eat anything with poppy seeds in it and if you did, you're supposed to inform the person performing the test because it will skew the results. There are trace amounts of opium in regular poppies even though it's not enough to use them to produce actual opium.
Anecdotally, my grandmother told me that when she was a child it was considered normal to douse a knotted rag in hard liquor and let fussy babies suckle on that.
[1] https://journals.sagepub.com/doi/pdf/10.1177/014107680009300...
We had maybe 30kg bag of dried poppy seeds for the winter, same as my grandparents and other friends and family, you can imagine how big the fields were. We used some of the seeds to plant next season, and this continued for decades within families, nobody was buying seeds back then.
People were not so desperate to get high and escape reality, alcohol was enough. Probably the only advantage to life in communism, that and lack of organized crime.
It's incredibly addicting and even harder to quit than heroin, because there are many alkaloids present in the tea, all with different half-lives and strengths.
All you'd do is pour some seeds into a bottle, add some citric acid, add some strong-tasting liquid to cover the taste, then shake the whole thing, strain out the seeds and drink the result.
A key difference being that opioids have a very real potential to cause massive, undeniable and observable harm to casual users (like all mind altering drugs including alcohol).
Crypto means that people can trade without having the regulators whitelist all the transactions. Historically speaking, that would appear to be an extremely positive thing for the traders. There are worrying signs about that we are about to repeat the 1920s, 1930s then the 1940s - this is a great time to start working with government-independent money. The Canadian trucker incident alone is a nasty foreshadowing of what we are likely to see more of as energy availability tightens. The government is not governed by compromising liberty-minded types.
The illegal uses of crypto aren't going away, so we may as well make it easy for all the honest people to use it.
And there are people who think that consuming energy is in itself a bad thing. I wonder how they feel about people voluntarily taking holidays, which are a much bigger waste of energy. At some point we have to let people make their own choices about what they value without trying to second guess them based on personal opinions.
The rest of this comment was not where I thought you'd go with this. You realize the creation of the SEC was a direct result of the stock market crash in 1929 ,due mainly to people's life savings being invested by commercial banks without regards for the underlying economics of the investments, exactly what the SEC is trying to prevent happening with crypto (by regulating it under the same doctrine)
These are not magic words; repeating them does not make one immune from regulation/prosecution.
Over time it is probably going to behave more like savings. The price looks like it might be stabilising with respect to gold which is an interesting thing [0].
You’re describing regulated opiates versus street heroin. That is the point. Nobody thinks street heroin distributors can reasonably be shocked they’re breaking the law just because pharmacists distribute similar products.
Expressing good arguments forcefully isn’t irrational. The comparison to heroin distribution is an argument ad absurdum showing why Coinbase’s arguments aren’t novel. The rhetoric would not be a structurally different argument if it were instead about jumbo jets or vodka.
> the dude didn't even have a clear answer about the status of Ethereum
Is he required to? The SEC isn’t doing anything to suggest it claims jurisdiction over Ethereum. (It’s also not at his discretion.)
Not knowing the answer to the most obvious question is mildly embarrassing, to say the least. It's clear that he didn't do his due diligence and jeopardized the SEC competency and integrity. His very clear conflict of interests with FTX (i.e. Sam) and Binance (where he was refused a position some years ago) were already not really helping.
And yeah, not knowing the most obvious answer just begs a simple question: how shall all these crypto exchanges have known (better than the SEC) that A, B or C are a commodity but D or E aren't? Please...
Crypto will prevail, Gary is just a bump in the road. The question is how much more damage he is going to cause to the US before he is removed, while the world is watching China toying with Ethereum having issued yesterday tokenized notes on that blockchain.
Whether Ethereum is a security is far from obvious. Had Gensler acted like it was, he would have lost credibility. In any case, it's irrelevant to Coinbase, who weren't charged in relation to their Bitcoin or Ether trading.
> how shall all these crypto exchanges have known (better than the SEC) that A, B or C are a commodity but D or E aren't
The SEC released The DAO Report in 2017 laying out a framework [1]. This is when crypto's lobbying stepped up; the status quo was clear. They wanted a different one.
> while the world is watching China toying with Ethereum
China has banned crypto since 2021 [2]. BOCI's $30mm placement in Hong Kong through UBS is interesting, but far from a belwether [3]. (UBS Tokenize has been selling digital assets to wealth management clients in Hong Kong and Singapore for a while.)
[1] https://www.sec.gov/litigation/investreport/34-81207.pdf
[2] https://www.bbc.com/news/technology-58678907
[3] https://www.ubs.com/global/en/media/display-page-ndp/en-2023...
That's the thing - they are not clarifying whether they have jurisdiction or not. And then you have to play the guessing game, with CFTC also chiming in about their preferences.
If you are running a sketchy business, you better have a team of lawyers going through case law and sketching up a theory of law that is defensible in court. Instead, it looks like Coinbase disliked the answer lawyers gave them, and went for the PR strategy instead. If Coinbase honestly thought they were on the right side of the law, they wouldn't be begging the public to vote for different people.
Reminds me of the fortune teller admitting that most fortune tellers are scammers, you just have to go to the legit ones.
It’s a piece by Molly White, temper your expectations lol, she’s rabidly against cryptocurrency in pretty much any format ever full stop.
Just because he's being mean to crypto doesn't make him tyrannical.
What he should have done: clarified upfront the status of Crypto tokens, like "X, Y, Z are commodities. A, B, C are securities" etc. And then offer a path to register those securities so that Coinbases of the world can start offering them properly.
What he did: sued Coinbase for trading 10-11 tokens as unregistered securities. And good players still don't know how to register Crypto tokens with SEC as securities.
Like when you're filing a tax return, you decide if something's deductible or not, based on the tax code, and if you get it wrong, then the Government unleashes pain on you. But they're not holding your hand.
It makes sense to me that the people with the most to gain from a novel financial instrument should be the ones who determine if it's legal, and explain why it's legal.
And if you don't have legal certainty about the status of token X... ...don't trade it.
The exchanges took the risk, made some good (fiat) coin doing so, and now they're finding out they were wrong.
And tbh I'm not sure there's an path to registering the many tokens that function as effective Ponzi schemes, because they're illegal.
Don't get me wrong, I think that the SEC was asleep at the wheel for years on this, but I can't see how that justifies being outraged when the regulator eventually pulls thumb. They made a lot of money while the regulators were napping.
And yeah, still don't see this as tyranny tbh.
A more specific analogy might go like this: Imagine some awesome new biotech startup that develops a completely new method to interact with cells - activate cellular receptors through long-distance quantum tunneling and gravitational nanolensing or whatever. Then it packages that tech into small, consumer-friendly devices which are programmed to activate a specific metabolic pathway in the wearer's brain: As it happens, that pathway is the exact same that is activated through heroin. Then they sell those devices to the general public without any restrictions.
One day, the FDA knocks on the door and says "hey guys, your tech is cool and all and we're sure it can trigger all kinds of amazing medical breakthroughs - but right now, you're using it as heroin with extra steps. And selling hard drugs for recreational use is forbidden."
To which the startup guys might reply "oh no no no mister, we're not in the business of making drugs, we're actually a long-distance quantum tunneling/gravitational nanolensing company. You see, this is such a new field and fundamentally incomparable with anything that came before it that, unfortunately, there are no laws yet that we would fall under. However, we absolutely do see the need for regulation, and we're willing to work with you and together arrive at a sensible set of guidelines that won't stifle the immense potential for innovation of that field..."
At which point the FDA guy would probably tell them to cut their bullshit and the startup might respond with some long rant about how a tyrannical FDA literally suffocates American innovators or something.
I agree that it's reasonable to apply existing securities laws to cryptocurrency, and I agree that "but they let us go public" is a bad argument, but Gensler's SEC has also been intentionally obtuse about how those securities laws should apply to cryptocurrency. It's not a company's job to go to court over ambiguous regulations, it's the SEC's job to actually research what they are regulating and put out a comprehensive framework for how they make their regulatory determinations, because the Howey Test is so subjective that it's leaving companies guessing on the cutting edge of public programmable assets.
Look at the UK's upcoming crypto bills for an example of commonsense regulation that protects consumers and is in everyone's best interest. The contrast between it and the US's approach is striking.
No. Coinbase’s complaint is that the SEC has been clear, but that they don’t like the clear answer.
https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn...
> Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital tokens are securities, and has asked issuers and exchanges that offer, sell, and trade them to come in and register. We disagree that the majority of digital assets are securities. For those digital assets that are securities, registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens.
(I’m not the expert to hire for this, but https://www.investopedia.com/terms/s/sec-form-8-a.asp looks promising.)
Coinbase doesn't care if it can offer its customers shares of AAPL or TSLA. They care whether they can start brokering the types of securities that are found on public ledgers.
In practice this just means it's de-facto impossible for any centralized exchange to carry crypto securities.
Similarly, they won’t help you figure out how to insider trade, no matter how nicely you ask.
“Please make our illegal business legal, the rules don’t allow it” gets a predictable reception.
If an entire country can't use a piece of accounting software that's gaining worldwide relevance, that's the country's problem.
Companies like Coinbase and a16z have publicly stated their intentions to establish international arms to hedge against the US regulatory environment, and there's no reason my portfolio can't follow their lead.
So you have to ask yourself... why isn't Coinbase making that argument?
Coinbase has (obviously) always been a strong advocate of distributed ledger technology, is constantly warning of the ramifications of this software being de-facto banned in the US, and has publicly stated that they have contingencies in place for moving offshore if it's economically unviable to be headquartered in and/or serve the US market.
They've been making that argument since 2012.
They should go. Crypto has a niche outside major economies and developed countries with the rule of law.
If you go back to the 1930s, bankers protested similarly (as they did again in the late 90s). Turns out freewheeling fraud isn’t a determinant for financial centrality. Worst case: we can revisit if London or Singapore make this work, given they’re rapidly approaching being the only financial centres who will stomach this.
Accounting software have tons of local adaptations.
Countries change laws to give their citizens access to important products. It's not about the company.
The USA didn't decide to rewrite existing telephony laws for VOIP in the 90s because they wanted to give Skype a handout, they did it because they understood the potential benefits of internet telephony for the populous.
> Accounting software have tons of local adaptations.
You can't locally adapt a ledger that is globally shared across all the other countries. Either you allow the ledger in your country or you don't.
And Congress was lobbied to do that and they declined. Is your argument that 'they should have done it' means 'the SEC isn't allowed to enforce existing regulations'?
Then you can't be licensed. Simple. "But I really really really want to be licensed" "..."
Coinbase and a16z have already publicly stated that they have plans to set up international arms to hedge against US regulatory risk.
So your statement "then you can't be licensed, simple", comes with the corollary of "the USA's strong fintech industry may move entirely offshore within the next decade." If everyone is cool with that, then yeah, go ahead and blanket ban all US residents from trading any financial instrument that's recorded on a public digital ledger.
Licensed in this discussion obiviously meant the US.
"Coinbase and a16z have already publicly stated that they have plans to set up international arms to hedge against US regulatory risk."
Which is great for them I guess.
"the USA's strong fintech industry"
A tiny, and some might argue irrelevant, part of the US fintech industry is moving offshore.
Crypto to me feels like fusion, it's super relevant, and you just wait some time, you'll see! and then there is another year and another decade and it is still not relevant.
You'd better be very sure of its irrelevancy before sending it all to the UK, where they're embracing it with a clear regulatory framework. If you are right, the US pushes a small ("irrelevant") amount of crime offshore. But in the off chance you are wrong, the USA risks losing their position as the world's financial superpower. This is not a gamble you want to take if there's even a very small chance that this technology could catch on.
> Crypto to me feels like fusion, it's super relevant, and you just wait some time, you'll see! and then there is another year and another decade and it is still not relevant.
It gets discussed multiple times per week on Hacker News. It's talked about constantly in congress. It's beginning to polarize people so much that it creates single issue voters in both directions. The word "NFT" has been etched into the public's consciousness as a meme. Banks and central governments are issuing bonds and other paper on public blockchains. The US is itself planning a version of the US dollar with a design inspired by distributed ledger technology. More than 1 in 5 Americans own cryptocurrency now. I don't know what measure of "relevant" you are using, but it's obviously very different from mine.
I also own crypto somewhere. I don't use it, I don't sell it, I don't care.
Why? We’re allies and economically connected.
> the USA risks losing their position as the world's financial superpower
Wat.
> US is itself planning a version of the US dollar with a design inspired by distributed ledger technology
This project, thankfully, was dropped by the Fed after preliminary study.
The USA is the world's finance hub because it has the most reliable systems for trading financial assets, and because it has the most reliable currency. But Ethereum network transactions are pretty damn reliable too, even more reliable than wire transfers in some ways (if a bit costly at the moment). Trading on Uniswap is generally more reliable than trading stocks in my brokerage account, and I like how I can bundle multiple trades, borrows and sends together so that they execute atomically, a feature that my brokerage account doesn't support and probably never will. I like that with DeFi, I get to choose my asset-backed loan underwriter separately from my custodian, rather than them both having to be my broker (many of which charge way above market rates for margin loans). Trade settlement happens within seconds, not days. And there has been a cambrian explosion of stablecoin designs, some of them unreliable, some of them quite a bit more reliable than most government currencies.
Is any of it truly better than the current way stocks and currency are traded and held? Maybe, maybe not, but the stakes are much higher than I think most people understand. Distributed ledgers certainly offer some specific advantages that people really sleep on.
> This project, thankfully, was dropped by the Fed after preliminary study.
Nope.
https://www.whitehouse.gov/wp-content/uploads/2022/09/09-202...
https://en.wikipedia.org/wiki/History_of_CBDCs_by_country#Un...
We had the largest consumer market which underwrote a deep financial system. That depth and breadth, together with a rules-based system, is what fuels American financial hegemony. Between political volatility, sanctions and our archaic payment system, we do not hold out reliability as a selling point. (You have to go out to the 1910s to see American financial infrastructure being at the forefront.)
There are definitely lessons to be ported from crypto to our system. But they can come from academia and non-commercial hobbyists or be copied once demonstrated in e.g. London.
> Nope
Yes. You’re citing Q3 ‘22 materials. The programme lost the support it was limping on after Silvergate, SVB and Signatures’ failures. FedNow makes more sense anyway. (We probably wouldn’t have it without crypto.)
Because there is regulation. You seem to get cause and effect mixed up.
The whole point of regulations is to make various business models impossible.
The job of the SEC is to enforce the existing regulations and the job of lawmakers to (maybe) change the regulations if they think it's important to make this type of business possible in the US. In doing so they have to weigh potential benefits and harms caused by doing so.
The guiding priciples behind the SEC's current mandate and the current regulatory enforcement framework in the US Securities Laws are 1)investor protection, 2)fair, efficient and orderly markets and 3)capital formation[1]. In making changes to the securities laws, lawmakers would have to decide whether these changes would compromise these principles and whether the benefit of doing so might outweigh the downsides.
An impartial observer might look at the crypto markets thus far and decide that they are not (in the main) fair, orderly and efficient and that investors have suffered significant losses due to fraud and other malpractise and decide that it wasn't worth the risk to make changes to facilitate these businesses. That said, the crypto industry has spent a very significant amount lobbying lawmakers so they may decide otherwise.
Either way, it's not the job of the SEC (Securities regulator) to decide coinbase gets a free pass to ignore securities regulation in this case because the existing regulations make their business model impossible.
I guess that's the job of congress, then. I think the SEC Stabilization Act is an excellent start. There's nothing unreasonable about wanting to broker securities on a public ledger.
I don't think it's the "public ledger" part of this that causes the regulatory issue frankly.
Myself I think that's precisely the issue the SEC is hung up on, but we could argue endlessly about what is probably causing the regulatory issue with the SEC and what they are probably okay and probably not okay with. Meanwhile, the UK just laid out a clear framework for crypto securities exchange in their new bill, which gives an unambiguous regulatory green light to any companies who want to relocate there.
Yes, same as the others. What doesn’t exist is registration per Coinbase’s model of integrated broker, custodian and exchange. We specifically outlawed that in 1934 because it did precisely what crypto did in almost exactly the same time frame in the period stretching from 1918 (post-WWI) through the 20s’ boom years into 1933.
"Here is how we interpret the Howey test in relation to cryptocurrencies, and here is a ten step process for how we determine whether each particular cryptocurrency is a security" is clarity.
Can you imagine if, back when the SEC first formed in 1934, they put out a press release saying "the vast majority of stocks are securities and need to come register, but not The Bank Of New York, their stock is not a security". Imagine that the SEC didn't elaborate on why they didn't consider that one stock to not be a security, and they didn't elaborate on the reasoning process that led them to that decision.
That's what's happening right now, but with cryptocurrencies.
The 2023 SEC is very different from the 1934 SEC.
This is basically what happened. Mortgage loans and certificates of deposit, for example, aren’t securities by judicial clarification, not definition in the law. (See: Marine Bank v. Weaver)
The Howey test isn’t that complicated, and Coinbase Earn ticked all four boxes.
Still, Earn may well be a security, but that's a product that will fit very cleanly into current securities law when it reaches the court, and it concerns a company's product rather than an entire new asset class, so it's not so egregious that the SEC doesn't provide clarity on it.
The big problem is with their lack of clarity on the cryptocurrencies themselves.
Anyone: "Okay then, is [insert ANY crypto here other than BTC] a security?"
SEC: "We decline to answer, or give a hint, but the vast majority of digital tokens are securities!"
I really don't care what happens, or how it got to this point, but this state of affairs is absolutely and unequivocally ridiculous and absurd.
SEC: “No. Stop playing games. You have to register.”
Coinbase lists less than 300 of the tens of thousands of cryptocurrencies out there - indeed a tiny minority of them, and they do have some kind of legal review process, so while that claim may well be untrue, it's not absurd on its face.
The first step of effective regulation is to state exactly what is out of compliance, which they finally did only a few days ago by listing which particular coins are the ones that put Coinbase out of compliance.
The second step is to explain why those particular coins cause them to be non-compliant and why other coins (Bitcoin) are exempt, in such a way that Coinbase has rules they can apply to determine whether a particular new coin is compliant or not. That clarity is the part we're still waiting for.
Nah, the alternative is why cops get away with everything via qualified immunity. Conmen don’t get given a pat list of what is and isn’t allowed; no one wants to play the “but you saaaaaaid!” game that results.
Yes, they do. Civil courts are full of almost nothing besides "but you said" games. You're just describing the status quo of how law works.
Same with securities. The Howey test exists. The courts and Congress occasionally find a tweak that needs making, but they aren’t likely to be impressed by shenanigans like “oh it isn’t a shared enterprise because of this cute quirky thing”.
https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
> Elsewhere in the speech, Hinman explained: "If the network on which [a] token or coin is to function is sufficiently decentralized — where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts — the assets may not represent an investment contract."
Eth is fairly uniquely complicated by the fact that it probably went from security to commodity before they could get smacked for the security period.
With only BTC Coinbase would not be an exchange but a wallet.
Like I said, I don't care what happens - but as an outside observer - it's ridiculous.
Even if we assume Coinbase is in the wrong here, a hypothetical exchange with better vetting could also list dozens of coins and be entirely legit with no securities.
The SEC has been super clear for most crypto except Bitcoin and Ether.
Yes. Start with the SEC’s complaint against Coinbase: SOL, ADA, MATIC and ten others [1].
Beyond that, ask a securities lawyer or ask the SEC. Coinbase did. The SEC answered. Coinbase didn’t like the answer, and focussed its messaging on irrelevant statements (or a lack thereof) by Gensler about Bitcoin and Ether. If someone only cash traded those two, they would have a legitimate argument against the SEC’s ambiguity. But practically nobody does: instead they operate unlicensed and illegally-configured securities outfits.
[1] https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1... 114
That attitude started aroind the time Uber got big. Maybe even with AirBnB. In a sense, crypto is exactly the tech eco system we deserve. Good that there is finally some enforcement of rules that apply tp basically everyone else.
Sometimes the court system decides the agency’s rules exceed the authority granted to them by Congress.
Other times Congress uses the Congressional Review Act or new legislation to say “that’s not what we meant”.
The Howey test exists because the SEC enforced said new-ish regulations against someone, and the court agreed with them, holding Howey liable for violations of the '33 Act as implemented by regulators at the SEC.
All this makes the statement "No, Congress creates the rules" upthread inaccurate.
The violations the SEC describes in its complaint (¶ 8) are not nitty gritty. It's all bare-boned Exchange Act malfeasance.
What? The laws Coinbase is being charged with violating are creatures of the Congress and courts, not the administrative state. This is not a case of "the agency that enforces the rules is also charged with creating them" [1].
Again, the point is that both Congress and the SEC make "the rules" around securities. Congress defined securities and gave the SEC the ability to write the rules for securities, with some specific requirements. The SEC's rules can't violate the various Acts of Congress, but they've still got quite a bit of rule-making power delegated to them.
Right. Like choosing what's important and what's not. (It's also a totally dishonest framing by Coinbase. Their business model, a unified broker, exchange and custodian, is fundamentally in violation of the '34 Act. They're asking the SEC to break the law.)
What makes no sense to me is the stupidity of fighting the case. I understand Coinbase's PR rallying the crypto base before. They were making a lobbying push to change the law. And the base would throw money at them. But now? Either management has reason to believe they can run out the clock on the SEC before Congress changes the rules. Or they're as delusional as the base.
We all know that before the crypto bust, a lot of people would've been starting a witch hunt if the SEC had tried to enforce the law. Congress, for starters.
Gensler is being opportunistic now because that's the reality they have to work with.
The wealthy and powerful in this country take it on themselves to personally ruin public servants who get in their way sometimes.
The SEC decides when, what, and for whom it enforces rules?
Would you agree that each library can't have every book ever written, and do you think there is a distinction between not selecting a book and "banning" it?
As if there is a system that catches, charges, prosecutes and/or convicts everyone who breaks the law.
A library can't have every book in the world. This doesn't mean that not selecting a book is exactly the same as "banning" it. It does mean the issue is nuanced.
Oh poor Gensler, former banker turned regulator worth $100 million, getting push back when he robs people of their right to invest their money how they want.
The SEC has brought zero enforcement action that turns on Bitcoin or Ether being securities. Somewhat hilariously, these complaints are an industry endemic with bullshitters flipping out about Gensler being able to say “I don’t know.”
"Some of them did securities offerings, but by the time the SEC noticed they were too entrenched and decentralized and it would have been a pain for the SEC to go after them. Ethereum, most notably, very very clearly did an ICO in 2014, raising about $18.3 million by selling ETH tokens. If they did that today, or in late 2017, the SEC would have some serious questions. But by the time the SEC got around to cracking down on ICOs in 2017, Ethereum was big and decentralized and the SEC would have had a hard time, practically and legally, challenging its 2014 ICO. And so everyone sort of grudgingly concedes that ETH is not a security."
Uhhh… about that… https://en.m.wikipedia.org/wiki/Illicit_activities_of_North_...
The article isn't saying crypto is harmful like heroin at all -- it's just using heroin as an arbitrary example of something illegal. It's clear to everyone that selling heroin is illegal, in a way that e.g. insider trading perhaps isn't.
So it's not alarmist nonsense, it's just a vivid analogy.
And, given this discussion, it vividly illustrates the point.
The number of people who literally can't entertain even the vague possibility that Coinbase might be doing something illegal (as in illegal like heroin) and thus can ONLY interpret the analogy as Coinbase is bad (as in bad like heroin).
> Coinbase, as with most crypto platforms, has decided it wants to simultaneously operate as an exchange, broker-dealer, and clearing agency. These three functions — bringing together securities orders for buyers and sellers, trading securities on behalf of others, and intermediating trades — are typically required to be separate due to conflicts of interest that emerge when one entity controls all of them. Coinbase would need to fundamentally change its business model in order to separate these functions, and thus far seems unwilling to do so.
Coinbase's real complaint is that it wants regulation to change so that Coinbase is in compliance, rather than Coinbase changing so that it is in compliance. The lack of "clarity" isn't that it's unclear whether or not Coinbase is compliant, but that it's unclear how Coinbase can become compliant without changing foundational aspects of how it's structured. To honestly argue why regulation should change, you would need to explain why a currently-noncompliant policy should be compliant. In other words, why does an apparent conflict of interest in "traditional" finance not actually exist for the crypto industry (or at least why we should be okay with it existing).
The SEC messed up for years but not protecting consumers against fraud. Now they’re trying to prove their reason existence / gov funding.
In one of the (I think MIT lectures 2018) videos, btw? Gensler stated that [probably all crypto except Bitcoin, but including Ether, are moody moody most likely securities].
However, the SEC fails to to provide any guidance and doesn’t have any official position. The reason is that if they make a small mistake or missed sleeping, they might’ve given a free pass.
Edit - MIT open courseware 2018
Coinbase's PR machine wants you to believe they want clarity. Their actual legal documents instead indicate that they're aware that they're probably violating regulations. Take their petition to the SEC for example--it starts by asking not "are cryptocurrencies securities under the Howey test" but "should cryptocurrencies be considered securities". For a document that's supposedly Coinbase's grand we're-going-to-make-the-SEC-clarify-regulation strategy, it's very long on asking for changes to the regulatory regime and very short on asking for clarifications on the application of regulation to cryptocurrencies. Which strongly suggests that they in fact know how the regulations apply to cryptocurrencies, they just don't like it.
It also helps when one of your former execs came from Goldman Sachs, and were backed by VC including YC and the Stanford mafia--Balaji's buy out of 21 and being placed as CTO confirmed all my suspicions I had during thier mining days.
Honestly, and I say this with all the malice in the World if you are reading this, Armstrong: I hope we can finally get rid of you and that cancer that is Coinbase and all the BS it has wrought us once and for all, even if it crashes the market for a while.
The fact that they hold that much BTC is a huge issue, but what is at the core of this is more to do with the real problem with this is centralized systems with directly conflicting ideals to the overall community operates with so much weight in an otherwise decentralized network: they were unfit to be in this ecosystem and they exploited a very clear window with their immense access to resources and VC money and while they made the most of it, it seems the tide has finally turned on them.
I can forgive Mark and MTGOX, that was a case of what happens when gross incompetence and unforeseen immense growth intersect; he paid a price for that, spent time in a Japanese prison and had his entire life ruined in the process.
Brian Armstrong has spent a decade being the bane of the Bitcoin ecosystem and sold scams to unwitting customers with no remorse, sided with the FUDsters during USAF etc... this is the typical corpo with no scruples trying to act innocent when he is finally subjected to the same regulatory body who leave the rest of us in the dark: those who I will remind you he sided with all along because it benefited him.
I honestly wish he gets the Charlie Schrem treatment and gets humbled in the same way.
As recently as 2 months ago Gensler declined to say whether or not Ether is a security in front of congress.
Whether Ether is a security is irrelevant to this case, based on an investigation which pre-dates Gensler’s term at the SEC, which is about whether Coinbase is required to register and operate as a securities exchange on account of having traded e.g. Solana. The entire argument obsessing over his refusing to come to conclusions until facts are established reminds me of creationists picking a tiny, side element of scientists’ arguments and then spending their entire time arguing with themselves over a point with zero germaneness.
False condition. The SEC has made it clear that various crypto, e.g. Solana, are securities. If you want to trade those, you must register. Again, if you just want to cash trade Bitcoin and Ether, the SEC has shown zero inclination of messing with you.
Before that afaik the only cryptocurrency the sec had explicitly said was a security was XRP which coinbase delisted
If you want to know whether something is legal or not, you talk to a lawyer or (less reliably) law enforcement. When Coinbase asked the SEC if it needed to register, without—to my knowledge—exception, it said yes.
[1] https://www.sec.gov/litigation/investreport/34-81207.pdf
"Blockchain isn't the-- we don't have regulation because of blockchain, and we don't necessarily need a new set of regulations." https://youtu.be/l0vD_FBWk0g?t=1976
Discussion about SAFT / utility etc: https://youtu.be/iWpQpPbo7rM?t=994
XRP is a security, but "what I believe.. is just that, it's a believe". https://youtu.be/7EXcHqLg7BI?t=2767
Bitcoin is a commodity https://youtu.be/KHBi3n0hUSU?t=3591
"So we already know in the US and in many other jurisdictions that 3/4 of the market are not ICOs or not what would be called securities, even in the US, Canada, and Taiwan, the three jurisdictions that follow something similar to the Howey Test that we've talked about. 3/4 of the market is non-securities. It's just a commodity, a cash crypto. So you'll hear debates about initial coin offerings. And what's a security? And what's not a security? Relevant-- relevant and important debate, but for 3/4 of the market, it's not particularly relevant as a legal matter, as a regulatory matter. "
Here's one for Paxos.[2] They asked for permission to run a small-scale blockchain-based clearing operation without being registered as a clearing house. No more than 7 institutional customers, a limited list of stocks, and a time limit. They got it.
Somehow, Coinbase doesn't seem to be on the list there. It's a public record.
[1] https://www.sec.gov/divisions/marketreg/mr-noaction
[2] https://www.sec.gov/divisions/marketreg/mr-noaction/2020/fin...
This doesn't appear to be what the SEC is suing Coinbase for though, and is actually far more applicable to the question "then why were they allowed to go public?"
It's possible (likely even) there are nuances I don't grok, but sued for selling unregistred securities is not the same as requiring structural separation.
QUESTION 17: “Coinbase plays the role of both broker, executing trades on behalf of clients, as well as an exchange, matching buyers and sellers. This is a unique situation. In other markets, i.e. equities, a broker would be required to be legally independent of an exchange. Could you talk about how Coinbase operates as both a broker and an exchange? It seems like there are some conflicts of interest in the current situation." -- TidewaterVirginia
Alesia: All right. Question 17. "Coinbase plays the role of both broker, executing trades on behalf of clients, as well as an exchange, matching buyers and sellers. This is a unique situation. In other markets, i.e. equities, a broker would be required to be legally independent of an exchange. Could you talk about how Coinbase operates as both a broker and an exchange? It seems like there are some conflicts of interest in the current situation." This is from TidewaterVirginia. Thank you so much for this question.
Alesia: So it's true. On our retail side, we operate a full broker that includes the retail brokerage piece, as well as custody embedded in that retail trading experience. On the institutional side, we operate an exchange, a broker, and then a custodian. What I think is important about the Coinbase business model is that we have set up our business such that there's not a conflict. We do not proprietarily trade against our clients. What this means is that we're only executing orders on our customer's behalf and seeking for the best execution on those customer's’ orders.
Alesia: So when an institutional customer engages with our broker, for example, we're routing that order across multiple liquidity venues; many trades on our own exchange, but oftentimes it trades outside of Coinbase as well, wherever the best price may be for that customer. In doing this, it is an agents-only model. There's no conflict of interest for us operating both the exchange and the broker, because we are ensuring that we're acting in our client's best interest at every point in the transaction.
---
The issue isn't so much that they're doing this, but what the corresponding implications of it when related to unregistered securities.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1...
> The Coinbase Platform merges three functions that are typically separated in traditional securities markets—those of brokers, exchanges, and clearing agencies. Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets. All the while, Coinbase has earned billions of dollars in revenues by, among other things, collecting transaction fees from investors whom Coinbase has deprived of the disclosures and protections that registration entails and thus exposed to significant risk.
It's that they are unregistered as any of those things.
> 8. By engaging in the conduct set forth in this Complaint, Coinbase has acted as an exchange, a broker, and a clearing agency, without registering as an exchange, broker, or clearing agency, in violation of Sections 5, 15(a), and 17A(b) of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)(1)], and for purposes of Coinbase’s violations of the Exchange Act, CGI was a control person of Coinbase under Exchange Act Section 20(a) [15 U.S.C. § 78t(a)]. In addition, through its Staking Program, Coinbase has offered and sold securities without registering its offers and sales, in violation of Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)].
We have illegal weapons but what is special with us, we won't use them. So it's not illegal.
Coinbase isn't being sued because it's trading Eth. It's being sued because it's trading a lot of things that aren't BTC or Eth.
Which the SEC was also refusing to rule on, even though it would have been easy and consumer-protective to get that done within a month or two of the coins gaining popularity.
If I don't treat that as uncertainty, I guess I have to assign significantly worse motivations...
The SEC doesn't rule on things. They make rules (not laws), but they don't decide those things. That is the domain of the judicial branch - not the SEC.
The SEC can say "I consider X to be a security" but it's the judges that apply those rules and decide if the proper regulations are followed.
You will note that its a judge demanding that the SEC respond to Coinbase (U.S. Court Tells SEC to Respond to Coinbase's Rulemaking Petition Within a Week - https://www.coindesk.com/policy/2023/06/07/us-court-tells-se... ).
The SEC, as part of the legislative branch makes the rules to follow under its creation as part of the Securities and Exchange Act of 1934. It can bring things to be enforced or decided to the judicial branch - it isn't the judge or jury.
It would be improper for the SEC to make claims that haven't been decided by judicial branch. The SEC can say "we consider digital assets that can gain value by actions of others to be securities" but its consider - saying "yes, ETH is a security" is something for a judge to decide, not the SEC. The way that is done is for the SEC to take a company that is trading what it considers to be an unregistered security to retail customers to court.
---
(edit)
Additionally from the Coinbase S-1 https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/cbfab06...
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.The SEC does not approve IPOs. This is made abundantly clear in the law and rules, it is hammered into every first-year securities candidate as part of their licensing and it is front and centre on every S-1.
They don't need to make "merit-based judgements" to do the same security analysis they'd do after the IPO.
I said the exact opposite of that. Please look at the second sentence again.
I want them to decide if I'm trading securities, especially when "this might be considered a security" is in my S1. Nothing more.
Investment banks would love this. It’s pro bono legal advice.
If this is important, require a legal opinion or no-action letter prior to investing in the IPO. Coinbase didn’t secure those and investors didn’t demand it. Here we are.
Also there is potential fine revenue.
But for big enough companies, some amount of taxpayer-paid analysis makes sense. It ultimately benefits consumers.
Isn't analyzing the S1 "pro bono legal advice" to begin with?
And they did have legal opinions, just not from the SEC that is still almost entirely refusing to evaluate crypto tokens. Would a no action letter have been feasible?
Probably not, given the integrated broker-exchange-custodian model. But that’s the point. We specifically outlawed that in 1934. Coinbase was counting on rules being changed in the midst of regulatory inertia.
No, it's asking an agency to clarify its own rules.
If I, as a ham radio enthusiast, find an unclear section of the FCC rules I expect to be able to contact someone and ask what the agency's understanding of it is. They wrote it after all.
For example, if they wrote 5-15Mhz, I might wonder if they mean inclusively. Does that cover 15Mhz, or just 14.9999?
I'm not expecting them to preemptively rule on all legal cases which depend on this, just on their interpretation of their own words.
Why? That’s investors’ jobs. Coinbase disclosed the risk that their entire operations may be illegal.
In traditional finance a "securities exchange" is like, the New York Stock Exchange. A big centralized thing of which there are barely a dozen in the whole country and most people would have trouble to name three. There are many stocks that are only registered on one exchange. That wants to be separated from other functions because otherwise it would become an abusive monopoly.
Nobody has anything like a monopoly on trading Bitcoins so that doesn't really apply.
Just FYI here's the quote in context. She's posing a hypothetical here and not actually comparing Coinbase to a heroin dealer. This is very much in the style of Matt Levine at Bloomberg, btw.
If a company went to the FDA and said “hello, we’d like to start selling
heroin to the public for recreational use”, and the FDA said “no, you can’t
do that”, the company could loudly complain that the FDA was not giving them
a path to compliance. People would probably laugh at them.
The company could decide the FDA was wrong, demand that they and/or Congress
write new rules to allow for this innovative new heroin business that would
bolster American capital markets, and decide that in the meantime they were
going to sell heroin anyway. People might not be terribly sympathetic when
it didn’t end well for them.Still don't understand how the analogy applies to cryptocurrency.
>The company could decide the FDA was wrong...
But why would they decide this? Since Heroin is, again, illegal.
The style of argument is akin to Reductio ad Absurdum, taking an absurd position to it's logical conclusion. The "absurd position" here is a company wanting to sell heroin on the open market, and she takes that to the logical conclusion.
She could have said "meth", "nuclear weapons", or "dead infants", or whatever instead of heroin to make her point. If you read that as a comparison to Coinbase being a heroin dealer than you're the one editorializing her effort.
Here's another reductio ad absurdum argument:
Let's assume the earth is flat. Either the surface of the earth must go to infinity or people must be walking off the edge of it somewhere.
Honestly this should be a core mission of all regulatory agencies and the fact that it isn't is a disgrace.
You want public sector corporate law? If we’re socialising law, I’d think we’d start with criminal defense.
About time that reality checks happen.
I don't want to press too far, because I don't think you actually meant it, but...it's like you're advocating for socialized lawyers. Which is definitely an interesting idea!
Isn't this the exact same burden it would be for that person to hire a lawyer? All it would do is require the government to internalize the cost of regulatory compliance, which would increase efficiency by aligning the incentives of the government with reducing compliance costs.
> If you're not sure how to follow the law, get an expert in the law! That's why there's a regulated profession that explicitly provides expert advice on following the law.
Except that they don't actually have the authority to tell you if you're following the law. If you hire a lawyer and they tell you that the law is ambiguous and there isn't any relevant caselaw yet, you still have no idea if you're following the law or not. Meanwhile no one with the authority to make a binding determination will give you an answer.
Then you have a couple of choices with various outcomes. One of which is exactly what is happening to Coinbase right now. You can either 100% unambiguously follow the law, or you can push your luck and adhere to what you think either is or should be the law. In the latter case you may become said case law, whether you are able to continue your current ambiguously legal business practices or not!
That's how it's been done for the past two centuries. Why change now?
Because the public through its government is what created the grey area, so it should cover the cost of its lack of clarity, as a disincentive for causing it.
> Why can't it be part of Coinbase's business strategy to remain on the correct side of the law and then lobby congress for changes to those laws?
The entire point is that nobody will say whether they're allowed to do this, so they can't even know if they're on the correct side of the law. How dumb is it that the only way to find out if you can legally do something is to do it without knowing whether you're allowed to?
> That's how it's been done for the past two centuries. Why change now?
The best time to change a bad rule is two centuries ago. The second best time is immediately.
Isn't that the point of hiring an attorney, or if you're Coinbase, a large team of lawyers? We don't know what Coinbase's lawyers said to them (attorney client privilege). But this could just be a legal ruse, right? Raise doubt? Even though Coinbase knew they were in a shady area and raised it in their S1 filing?
Or do you think Coinbase was really this stupid and naive?
Generally so, if a company works in, or close, to a highly regulated industry it is up to that company to do so in a compliant way. Or generally compliant, there isba tendency of start-ups in Germany complaining about how taxes apply to them as well. If said company is not comoliant, it is on them. And does happen all over the place, to all companies, all the time. For stuff ranging from export, to taxes, to anti-trust and corruption. Only that, say, Lockheed isn't getting any slack when it comes to creative sales techniques.
And compliance costs are costs of doing business. If you cheap out on that, well, ypu deserve what ever is coming your way.
Authorities are the ones who create the rules. If they tell you what the rule means, that's what the rule means, because it's their rule. That's the point of having them be the one to tell you.
Some people defend themselves by saying they didn't take the action they're accused of, others can cop to the action they took, and argue that the law doesn't apply because x, y, z.
So, like, that's why case law is a whole thing, it extends "the rules" to "here's how the rules have been interpreted in these situations"
The Securities Act of '33, Exchange Act of '34 and Howey Test were not created by the SEC.
Coinbase also writes in great detail in the S-1 about
the risk that the SEC might bring a lawsuit exactly like
the one they just have:
[W]e could be subject to legal or regulatory action in the event the
SEC, a foreign regulatory authority, or a court were to determine that a supported crypto asset
currently offered, sold, or traded on our platform is a “security” under applicable laws… [W]e could
be subject to judicial or administrative sanctions for failing to offer or sell the crypto asset in
compliance with the registration requirements, or for acting as a broker, dealer, or national
securities exchange without appropriate registration.
[T]here is regulatory uncertainty regarding the status of our staking activities under the U.S.
federal securities laws.
Imagine if a company was selling "ground human meat" (see the movie "Soylent Green"). And they did it, well, because the market for ground human meat was suddenly exploding! I mean, in their S1 they might say "Sure this might be illegal, the FDA might take regulatory action against us." But also "Ground human meat is one hot market right now, you don't want to be left out on this rocket that's going straight to the moon!"
For example, police officers will regularly sit by the side of the road with a speed gun. They'll make no attempt to stop you driving at 150mph on the motorway but, in the UK, you'll receive a court summons through your door after the fact (and probably lose your license).
However, abusing retroactive enforcement does create a pretty clear case that the SEC is not interested in forming a regulatory framework for the exchange of digital commodities - instead preferring to import securities frameworks and punishing participants in the nascent industry.
Why should anyone reasonably believe the SEC has intentions to allow crypto to exist, and that coinage just did it wrong?
Statements like this create a pretty clear case that you haven’t read or shown any real interest in the SEC investigation and litigation related to crypto.
The particular product under investigation and or litigation was around for 3 or 4 years, and while the SEC is free to reclassify financial products at will - the fact that they did so and are now attempting to extract company-destroying damages indicates that they did not particularly care.
However:
> Even with a favorable ruling, a taxpayer has no absolute guarantee of the tax consequences, since the IRS can modify or revoke a previously issued private letter ruling if it is later determined that the ruling was incorrect or inconsistent with the current position of the IRS.
So even with a PLR, you have no guarantees.
1. Firstly, if the law isn't settled, then no they wouldn't.
2. The SEC weren't being asked by Congress, they were being asked by Coinbase.
So no, your attempt to torture the analogy doesn't work at all.
I don't understand how anyone can believe these people act in good faith.
> The head of the SEC was asked by congress if Eth was a security, and true to form he refused to answer.
So what you're saying is that the Head of the SEC refused to answer a question they're not qualified to. Because it's an unsettled area of law that they're now challenging through enforcement action.
> I don't understand how anyone can believe these people act in good faith.
I could ask the same of you.
Opiates! Prescribed opiates!
Same goes for weapons in some of the countries with the most restrictions on gun sales and ownership, it is still perfectly legal to sell military grade weapons to the military in those countries.
Funny, how HN seems to qctively failing to understand how regulations and compliance works as soon as they themselves, or one of theirs, is negatively affected by them...
> These three functions — bringing together securities orders for buyers and sellers, trading securities on behalf of others, and intermediating trades — are typically required to be separate due to conflicts of interest that emerge when one entity controls all of them.
She is saying it is like Heroin.
>> >The company could decide the FDA was wrong...
> But why would they decide this? Since Heroin is, again, illegal.
She is pointing out how absurb it is that Coinbase has decided the SEC is wrong (about the separation of roles) since - as you point out - not having the separation of roles is illegal.
Let's find out how the Ripple lawsuit is going to end, there is good chance to win it.
The woke up one day and they "hey this crypto is a threat to our dollar'. Gensler said "we don't need any more digital currencies, we have USD, EUR, YEN". And that for centuries there was no need to transfer value through more than one medium. That can explain their views clearly.
No, this is specifically addressed by securities law. It's not impossible, but you have to do it properly.
Inconceivable!
Reading the comment, you'd think the comparison was on harm or lethality.
Which is damn smart given we let regulated persons manufacture and distribute opiates. In this analogy, Coinbase is upset its heroin sales are illegal when a licensed pharmacist can sell a similar product.
If someone is having a strong emotional reaction, substitute any regulated product—jumbo jets, vodka, legal advice—and move on.
In this analogy Coinbase' story seems to be that they asked how to apply to become a licensed pharmacist, but never got an answer. While the SEC suggests they never tried.
This gets confusing when the crime is phrased as unregistered heroin sales.
They got an answer they didn't like: they'd have to change how they did business. (Also, what they list. The SEC issued The DAO Report in 2017.) We enacted the '34 Exchange Act in part to segregate the broker, exchange and custodial functions of securities trading. Coinbase was asking how to become a licensed pharmacist without having to check prescriptions.
> gets confusing when the crime is phrased as unregistered heroin sales
Try "opiate." Coinbase thought they found something new, and asked if it was okay. They didn't think they got a clear answer and proceeded. Now they're crying foul at the lack of prior guidance, or that someone else does have a license. The author's point is that these arguments don't make sense. There may be other arguments that do, but these aren't among them.
Using a much more extreme example to make the point (that companies don't automatically have a right to a path to compliance) obvious.
A: You say “Z is true of X”, and I respond “Z is false for thing-like-X”, implying “Z is likely false for X”.
B: You say “Z is true”, and I respond “Z is false for Y”, implying not “Y is like X therefore Z is likely false”, but “Z is sometimes false, so we need to actually evaluate whether it’s true of X”.
I think people who use this reasoning would do well to make it more explicit.
(Here, Z is “there must be a path to compliance”, X is Coinbase, and Y – not, I believe, thing-like-X – is heroin.)
Coinbase doing an IPO (and them using this argument against SEC) is not being compared to heroin.
The comparison is that Coinbase would go to SEC and ask "hey we want to sell these bitcoin futures and securities, is it okay?" and SEC says "nope it isn't" and Coinbase just says "okay we'll sell it anyways", which is exactly what they did.
They knew the law existed and applied to crypto, yet they decided to go against it anyways because they thought they could get away with interpretation shenaningans.
The Coinbase S1 admits this explicitly: they explicitly list the risk of their business model being contested by the SEC later in the document that the SEC approved.
The SEC doesn't approve IPOs. In bold among Coinbase's S-1's cover pages: "Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense."
https://investor.coinbase.com/financials/sec-filings/sec-fil...
"The government’s view is that cryptoassets and the activities underpinning their use should follow the standards expected of other similar financial services activities, commensurate to the risks they pose, while harnessing potential benefits of the technology behind them."
...
"HM Treasury proposes to capture cryptoasset activities provided in or to the United Kingdom."
...
"For cryptoasset issuance and disclosures, the government proposes to follow a similar approach to that for securities and apply regulation when the asset is admitted to trading on a regulated cryptoasset trading venue and therefore becomes exchangeable for fiat currency, or subject to a public offer."
...
"The government considers public offers of cryptoassets – including ICOs where a fund raiser creates new tokens and sells them to investors – may meet the definition of a security offering"
...
"In practice many cryptoasset exchanges play a central role in the cryptoasset ecosystem – conducting many more activities than solely operating a trading venue (e.g. custody, post-trade activities, proprietary trading, lending and admission of cryptoassets to a platform). Some venues may also issue their own native cryptoasset or act as intermediaries for the distribution of stablecoins. This is sometimes referred to as “vertical integration” or “agglomeration”. Accordingly, the government expects, as a minimum, that these entities follow rules covering all of these activities – not just those relevant for operating a trading venue. To illustrate, a major cryptoasset exchange would be required to comply with the issuance and disclosure rules for assets that they admit for trading (Chapter 5), the rules relating to the operation of a trading venue (Chapter 6) and certain surveillance and reporting requirements to detect and prevent market abuse (Chapter 9). Additionally, and depending on the sorts of activities they undertake, they would also need to comply with rules for market intermediaries (Chapter 7), cryptoasset custody rules for cryptoassets which they safeguard or safeguard and administer (Chapter 8) and rules for operating a cryptoasset lending platform (Chapter 10)."
All this is close to what the SEC requires. If it works like a security, a broker, or an exchange, it's regulated like a security, a broker, or an exchange.
This is probably more "clarity" than Coinbase wants.
[1] https://assets.publishing.service.gov.uk/government/uploads/...
> All this is close to what the SEC requires.
No, the SEC requires cryptoassets to slot perfectly into existing regulation, making it de-facto impossible for any public-ledger-based-securities exchange to operate. I cover that in my comment here:
https://news.ycombinator.com/item?id=36303345
Contrast that with the proposed UK law, which applies existing regulations in a commonsense way while realizing ones and zeroes in a public ledger behave fundamentally differently than the legal contracts they're used to regulating, and that those ones and zeroes absolutely, categorically cannot do certain things that 1930s laws might ask of them.
> This is probably more "clarity" than Coinbase wants.
Two months after the crypto bill was proposed, Brian Armstrong publicly stated (at a conference in London) that the UK's system is better for Coinbase than the US's system in the sense that there is one regulator providing clear guidelines (FCA) rather than two regulators squabbling over jurisdiction (SEC and CFTC).
He said: "You don't have this unfortunate thing happening where the CFTC and the SEC are having a turf battle. We actually have contradictory statements from the heads of the CFTC and the SEC coming out almost every few weeks. How's a business going to operate in that environment? We just want a clear rulebook."
So Coinbase has come out explicitly, emphatically, saying that the UK's crypto bill is exactly the level of clarity that they want.
Crypto was advertised as decentralized and unregulated.
Most arguments I had with cryptobros were some sudo arguments about this stuff instead of just omitting that it's all about speculations.
It's obvious that there is zero incentive here to do any real reporting or research. It's just clickbaity headlines and statements appealing to people who hate crypto. Of course it's hidden under a veil of neutrality with a biased selection of links that nobody actually clicks on scattered throughout the article.
Also, "facts" in topics that touch politics and law are complicated. This is not like science where measurement can be unambiguous. Most facts in topics such as these like these are not scientific facts, but highly politicized opinions that are ambiguous and open to interpretation. Much of the legal code is (on purpose) open to interpretation, including what's a security and what's not.
When trying to understand a topic like this the IMO best thing you can do is seek our content from people who have a somewhat neutral stance. Don't listen to a16z who want to pump all their crypto tokens. Don't listen to Molly White whose whole career depends on bashing anything crypto-related.
You're welcome to write a rebuttal but you're attacking the messenger repeatedly instead.
She wrote a cogent concise article that describes what's going on in the real world. Now, we await your brilliance, as soon as you're done repeatedly telling us it's "her career."
Again, we await your cutting dissection of, well, anything from this horrid bias-ridden article your peers saw fit to upvote.
From the submission guidelines:
"Anything that good hackers would find interesting. [...] anything that gratifies one's intellectual curiosity.
Off-Topic: Most stories about politics, or crime, or sports, or celebrities [...] If they'd cover it on TV news, it's probably off-topic."
I already agree with Molly, but I'm getting to learn a few things that are going on while enjoying her rant. She's not trying to persuade any crypto-fans, she's just expressing her exasperation.
I think Americans should fairly expect their regulators to be clear enough about the rules that the very securities regulator, whose job in large part it is to protect retail investors, not allow a company who is in the business of selling illegal securities to go public, and then take multiple years to file suit.
Any crypto sceptic who does not see a problem with this is tainted by their priors.
While crypto was growing and experimenting and not causing great harm, the regulators were happy to let it do its thing.
The moment major losses occurred due to large scale fraud collapses, THAT is when the regulators decided to pay more attention and look for rules that might be getting broken.
Moreover, with the increased use of crypto by nation states such as North Korea, Russia, Iran, Hamas, etc... to evade sanctions and launder money, and the general lack of any material crypto economy, then parts of the gov't, in general, are starting to think the show needs to end for crypto - and are talking to regulators to shut down exchanges.
That is why there are no "productive conversations" between Coinbase and regulators. The regulators don't want to give them any valid methods of operating - because they NOW don't want them to operate at all.
First, it's not ideal, but an investigation takes time.
Second, had the SEC said "we're not allowing you to go public because we think your business might be breaking ambiguous laws" it would have destroyed Coinbase with a combination of reputuational damage and the inability to raise money to operate. All for something that might be true but was unproven? That doesn't sound ideal, either.
By the way, love the "anyone who thinks otherwise is tainted" bit at the end, it truly speaks to our political climate.
I think Coinbase and the their investors would have appreciated a real a priori ruling on whether their business is an illegal securities exchange before going public but we can't do that for some reason.
Risks To Our Business: The SEC might shut us down for being an illegal securities exchange but has no way of telling us in advance if we're breaking any laws ¯\_(ツ)_/¯
I think there is very little room for this sequence of events to be considered fine. If there is any sense at all that the SEC's mission to protect retail investors "their whole publicly stated business model might be illegal and we might sue them out of business" is something you might say, "we're not sure if we're comfortable with you going public yet."
> We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.
> ...
> A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected.
> ...
> The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given crypto asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security.
[0] https://www.sec.gov/Archives/edgar/data/1679788/000162828021...
It would be like going public as a company that looked like ebay, and then later most of your userbase is buying and selling heroin, and now your business totally revolves around the heroin, and you've taken certain steps to encourage and participate in this heroin market directly.
I'm not qualified to comment on the legal or financial aspects, but this is a hostile and aggressive statement that detracts from the conversation.
You made a claim and offered reasons why you believe that claim. The correct thing to do from there is to allow other people to defend the other position, not end the discussion by saying "and if you disagree with me you're self-deluded".
Second, you’re arguing they were involved in illegal activities since before going public. How do you know that for sure?
I appreciate this feedback. I like how another commenter put it: "I think there is very little room for this sequence of events to be considered fine" - from a non-crypto-partisan, rule-of-law perspective.
> Second, you’re arguing they were involved in illegal activities since before going public. How do you know that for sure?
Because that is what the SEC is alleging in their lawsuit.
I would encourage you to consider your own priors and read the feedback that you're getting on this idea as well. In spite of your attempts to cut off opposition, there are a lot of very well-reasoned arguments for the SEC's approach.
Which ones do you find convincing?
I'm personally not invested enough (or knowledgeable enough) in this topic to debate you on it, but if you're so sure of your position you'd do well to get out there and defend it.
And investigations obviously take time. We don’t want a securities regulator who blindly files lawsuits against public companies.
Sorry but your arguments aren’t very convincing and I really dislike crypto.
Maybe the SEC will be able to lay out in court that they have been very busy with their investigation since 2019 (the date they are alleging is the latest Coinbase started trading securities).
I doubt it - but even if so, that's just not good enough.
Crypto sceptics generally agree that the SEC has been asleep at the wheel. What they aren't willing to acknowledge is that there are basic, non-crypto-related due process concerns with a regulator who lets a company operate, very publically and thus with its tacit approval, for basically a decade (that is how hold this debate around securities law is) - before then deciding they don't like it after all.
The trouble is that there aren't really clear existing rules - they are getting made at the moment by court judgement. If he had the power Ginsler would probably ban cryptocurrency but he doesn't.
Reviewing the S1 is not a complete review of the legitimacy of a business model, and, of course, cannot predict whether a company will comply with regulations in the future.
It’s notable your argument doesn’t address the fact that the S1 disclosures seemed accurate, e.g.:
> [W]e could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a supported crypto asset currently offered, sold, or traded on our platform is a “security” under applicable laws… [W]e could be subject to judicial or administrative sanctions for failing to offer or sell the crypto asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration.
It seems coinbase knew there was a substantial risk and proceeded anyway.
> Any crypto sceptic who does not see a problem with this is tainted by their priors
Someone shoulda stopped me is never a good defense. Perhaps they should have. But if it was so clear to them, it should have been even more clear to you, and you have the primary responsibility for your actions and decisions.
It’s up to coinbase and the others to figure out how to create a legal business model around crypto, not the SEC.
> Any crypto sceptic who does not see a problem with this is tainted by their priors.
My priors include the idea federal agencies operate within a scoped statutory authority, and the scope of that authority can even vary from function to function. It's a very "swim in your own lane" kind of partitioning.
It can lead to counterintuitive interactions, but on the whole makes sense if you step back and look at the system of congressional delegation to agencies they legislatively invent.
Who is this addressed at? I think most (any?) crypto skeptic would see the problems here and suggest that these exchanges should have been shut down much earlier. The fact that they were allowed to operate so long gave them the veneer of respectability which just brought in more suckers. Coinbase et al knew (or should have known) exactly what they were doing, they were making hey before the regulators caught up to them.
Nobody's claiming that the US legal system is perfect, but here we are. The wheels of justice grind away slowly. At least they're finally regulating these things.
People who want to ridicule complaints of a lack of 'regulatory clarity'. You can hold the view that crypto should have been aggressively regulated against much earlier, while also recognizing that regulators / the state have a due process obligations.
The state should not be allowed to take away your residency permit even if it was issued incorrectly 10y ago due to an oversight on their part. Similarly, it is reasonable to argue that the state should not be allowed to punish a business for behaviour it has tacitly approved of by doing nothing for a decode. It's not like Coinbase was doing this under the radar and the SEC just noticed recently.
- just because something is a currency doesn’t mean it’s not a security
There’s a reason why we separated exchanges, brokerages and clearing houses. Now it seems Binance is touching customer funds. Perhaps we just can cefi and use defi in crypto. If people want fiat on ramp they get a circle or tether account and redeem there
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1...
> On June 5, the SEC filed thirteen charges against crypto giant Binance, companies under its control, and its CEO Changpeng “CZ” Zhao. The charges against the companies involve unregistered offers of securities and investment schemes; failing to register with the SEC as an exchange, broker, broker-dealer, or clearing agency; and making materially false and misleading statements to investors. Two of the charges are against CZ specifically, as the control person over Binance and Binance.US.
It would be like a cop giving a speeding ticket to a kidnapper and then letting them go because he's "just on traffic duty". That would be perfectly legal, that would not make kidnapping ok, but I'd still fire the cop for gross gross negligence.
Couldn't they just stick with BTCUSD and a few others then let decentralized exchanges deal with crypto-crypto trade?
Would they really lose that much business? I always assumed (though I've never actually checked, it doesn't interest me that much) that almost all of the shitcoins were like, the long tail few % of revenue for these businesses, and it feels like that's where all the risk is, since Bitcoin is generally recognised as a commodity.
I mean, if needs must, spin off the shitcoin stuff into its own entity?
This seems like very little relative to a company worth tens of billions of dollars?
We can’t even say “oh, it’s not even mainstream yet!”, as I’m sure almost everyone has heard of Coinbase, FTX, Crypto.com and etc. through superbowl ads or casual bar conversations. So, I get a bit confused nowadays when people say “US will lose by not adopting the technology”, since there’s nothing really to adopt yet.
It could also be a way to organise open source software communities around paid work that can incentivise activity around the preferences of the donor, in addition to the current model of free volunteer work. Even NFTs could be used as an abstraction for the access of digital properties. Their popular use for distributing art became a limiting distraction.
10 years since BTC is hardly enough time for anything. As more sophisticated features are developed for the underlying networks, good use cases will come. A lot of oxygen was sucked out by use cases involving speculative investment.
The gambling aspect of crypto is never going away and I don’t think its a problem. Some responsibility has to be taken by the people who chose to trust scammers with their money. In fact at the height of the NFT craze people who are public influencer types were openly scamming and rug pulling marks on fucking youtube. How many of them got arrested? It is right to ask for action against criminals. But instead of that you have US government agencies trying to shut down an entire sector of commerce just because some guy made important people in seats of power look bad. None of this is being done to protect the people who lost money.
I don't think crypto is valuable for things like poverty alleviation etc. That is a challenge which has to be taken up by individual countries. Anyone who says crypto is going to save the world should be looked at with as much scepticism as the tech founders 10 years back who were claiming to do the same thing.
Crypto is super interesting technology that is one of the few tools that can fight the inexorable oligarchization and centralisation of all things in this world. It can make a lot of people very rich by providing them with opportunities that wouldn’t be possible under the current system of monopolies and governments controlling access to everything. For that reason it doesn’t deserve to die.
In any case, SEC can only set back the adoption of crypto networks in the US. But as tech proliferates around the world, cutting crypto off from the home of “tech” will not kill crypto. It just pushes the timetable back a little bit.
Crypto could continue as an academic activity and non-commercial hobby.
To continue with Molly’s drug analogy: look at psilocybin, where academic, hobbyist, and medical research in them has been delayed for many decades due to unreasonable legal restrictions and ideological campaigns against them.
They can publish hypothetical blockchains in peer-reviewed journals and sell overseas. The point is to separate "acquir[ing] these assets," which has been a money pit, from the potential benefits of the data structure and technology.
The emerging system appears to be China outsourcing this work to Hong Kong and America to London. We don't want the mess at home. But nobody wants to write off the people and projects.
To use these networks—and to test & objectively measure them—you need to be able to acquire tokens.
There is nothing in this that requires the tokens be distributed to the public, or if they are, that they be sold in exchange for cash and/or traded.
The desire that this should be confined to academic is nothing but a pipe dream at this point.
Overall, this outrage (and the article) is nothing short of wanton alarmism and sensationalisation of the situation. Not a mention of the Ripple Labs vs. SEC case which in the latest of the case the SEC attempted to request the sealing of documents on Hinman's speech in 2018 which that request was denied [0] and will benefit Ripple's case against the SEC's internal decision making of the matter which is also relevant to the current Coinbase vs. SEC litigation.
China on the other hand is now doing the exact opposite. [1]
[0] https://www.dropbox.com/s/c3mfvibgxig0vrx/Decision%20Denying...
[1] https://www.ubs.com/global/en/media/display-page-ndp/en-2023...
If it's normal for a startup to patch their software to keep up-to-date with changes/time, I wouldn't be surprised if SEC / Gov / Justice Dept updated their Views/Position with time!
Not financial advice, but smart move to be buying ETH.
There are many value that are neither trivial nor worth the effort of upgrading from pretty safe storage to completely safe storage.
Sometimes things are not pocket change but also not worth insuring.
I don't think the advice to never have an uninsured balance is helpful to the question that was asked.
I think she raises some really salient points, and it looks extremely bad that the CEO of Coinbase is making clearly specious arguments. I don't believe the SEC's approval of his filing says anything about the regulations around this securities law. I think he thinks he can win some cheap PR points with people who don't know any better. Acting like that does indicate that he probably doesn't have any real defense. People don't make bad arguments if they have good ones available to them.
The SEC just can't imagine a world where customers are fine without their 'protection'. We don't want your help, we don't need your help. GO away.
This is all well and good until you mess up the economic system for the rest of us. The Great Depression didn't just hit those with stock certificates. And the Great Recession didn't just hit those with mortgage-backed securities.
In a way, the mere existence of these big centralized exchanges is indication enough of the fact that the average person cannot be trusted to handle crypto without government backing them.
At 50k you remembered checking it when it was 25k, and regretted not buying. Well, it's 25k again, lucky you!
But wait! Is this me trying to help you? Shill my bags? Or trying to reverse-psyops you into staying a nocoiner? Take your pick!