SEC asked Coinbase to halt trading in everything except bitcoin, CEO says | Hacker News Reader

SEC asked Coinbase to halt trading in everything except bitcoin, CEO says

ft.com

216 pointsjlevett221 comments

Public article:

https://www.coindesk.com/policy/2023/07/31/sec-asked-coinbas...

> “They came back to us, and they said . . . we believe every asset other than bitcoin is a security,” Armstrong said according to the FT. “And, we said, well how are you coming to that conclusion, because that’s not our interpretation of the law. And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”

> Armstrong said the SEC recommendation left us no choice but to head to court.

> The SEC told the FT its enforcement division did not make formal requests for “companies to delist crypto assets.”

> “In the course of an investigation, the staff may share its own view as to what conduct may raise questions for the commission under the securities laws,” it added

Didn’t nearly all main SEC personnel publicly say that Ethereum is not a security?

Hinman and SEC pushing him to say it: https://blockworks.co/news/sec-hinman-eth-not-security

SEC chair Gary Gensler: https://decrypt.co/138334/gary-gensler-sec-ethereum-not-secu...

SEC prev chair Jay Clayton: https://finance.yahoo.com/amphtml/news/us-sec-chairman-jay-c...

Hester Pierce “crypto mom” ironically has never explicitly stated a position on Ethereum

What are they going to do now, backtrack on their own public statements?

They might believe their prior statements on the matter no longer apply since the transition to proof-of-stake? (I am not saying this is a good argument, but it is one I think I have seen people come up with.)

Yeah but their whole thing is that the specifics of the technology don’t change how securities laws apply. They’d likely claim both the miners and the stakers need to form an organization and have somebody responsible for compliance, if their proposed rules on altering the exchange definition is any indication.

I’ve have the unpleasant task of interacting with auditors from the SEC regularly in a heavily regulated industry. Trying to get any sort of real, factual guidelines from them is a fool’s errand.

Their auditors views and interpretations vary wildly year to year, and they will not provide any written guidelines for their positions. Instead they insist it’s up to the discretion of the individual auditor. I’ve seen fairly reserved people in screaming matches by the end of it all, and concessions will eventually be made which seems strange for a regulatory body to do.

All that is that say, they won’t backtrack on anything. They’ll simply say that those were the views of those people as individuals, and they are not reflective of the official stance of the regulatory body.

I'm not doubting anything you're saying, but are there examples of such problematic behaviors in the public record?

The entire cryptocurrency space is filled with genuine grifters and conmen.

It’s absolutely reasonable to doubt anyone making unsubstantiated and unverifiable claims in this space.

When I said problematic behavior, I was referring to this:

> Their auditors views and interpretations vary wildly year to year, and they will not provide any written guidelines for their positions.

That's why I started with the disclaimer that "yes I know crypto it's a scam", but the regulators also seem to be making it difficult to stay compliant.

Public record being official statements from business or government entities? I’m not aware of any personally.

Really I feel like I should clarify the above since I wrote it pretty late at night, and it I don’t think I really summed the experience up well. Another commenter mentioned their experience with other regulatory bodies that really cuts closer to what I intended to say:

“While I have no experience in dealing with the SEC, I do in dealing with EASA and SOX audits. One common theme, both give you the barebone rules as written, and it is up to you to figure out how to follow them.”

That really is my entire complaint. The grey area of what “counts” according to an auditor will vary over time, and what might count one year will suddenly be inadequate the next or vice versa.

Ha! So true. And there would be huge savings if they would both simplify things and focus much harder on substance

Assuming that the regulated entities wouldn’t just move to the hinterlands and edge cases of that newly simplified/clarified/substantiated law in order to skirt it.

Which, of course they would, and would go so far as to create new forms of currency to try to do it.

> they will not provide any written guidelines for their positions

They legally can't. That's rulemaking. There are formal processes for government agencies issuing binding guidance.

There is a real problem with ambiguous laws. But asking the SEC to be your lawyer is a bit of a fool's errand. Coinbase absolutely knew they were breaking the law when they set out; they, and the rest of crypto, just hoped they could change it before they got caught.

While I have no experience in dealing with the SEC, I do in dealing with EASA and SOX audits. One common theme, both give you the barebone rules as written, and it is up to you to figure out how to follow them. In case of EASA, you define your own processes, and auditors sign off on those. You can hire external consultants to help you, but in the end it is your responsibility.

In case of SOX, you are required to have one company doing the prep work (processes, controls, internal "audits") with you, while another company does the formal audots and signs of on the balance sheets and financiap results. The latter wont give you any guidance neither when it comes to how compliance can be achieved.

And in both cases, there are always people that refuse to accept the well established guiderails and limits, when those are explained to them. Excuses range from inconvenient to I-do-not-want-to to "but what about innovation". Which is just bonkers, because both, SOX and EASA basically allow you to write your own internal rule book, and still people are not happy. It seems following rules is just below some people and their egos. Not that auditors care so.

Ah, once again, the "No Backsies of informal statements" law.

Note that all of these are a long time ago, and even if their offhand opinions were legally binding the "strongest" of these articles

> had stated in a speech that ETH “in its present state” — as opposed to during its distribution via initial coin offering (ICO) — won’t be regulated as a security.

> Chairman Clayton noted that he agrees that a digital asset’s definition as a security is “not static” and thus can change over time.

Things have obviously changed. Also, the way Ethereum works has changed.

> Didn’t nearly all main SEC personnel publicly say that Ethereum is not a security?

No. Your first article cites Gensler's statements from 2018; he took the helm at the SEC in 2021 [1]. The second somehow draws conclusions from a letter Clayton wrote "without ever mentioning ETH directly" [2].

> What are they going to do now, backtrack on their own public statements

Moot point. When the SEC sued Coinbase, it didn't mention Ethereum. This entire line of argument is a red herring.

[1] https://en.wikipedia.org/wiki/Gary_Gensler

[2] https://finance.yahoo.com/news/us-sec-chairman-jay-clayton-1...

I will note on top of what other commenters have said to this, that most (all?) Of those statements were made before Ethereum went to Proof Of Stake, which has implications for centralization and control.

The word "formal" is doing a lot of lifting, here.

> word "formal" is doing a lot of lifting, here

As is the headline's "CEO says." This article is based on the anecdotes of a person being sued by the SEC.

CEO: "I can't believe they didn't give us a free pass even though we hired all these expensive lawyers and promised the SEC guys that we'd also give them cushy jobs in a few years. Truly the US has become hostile to world-changing innovation such as myself buying a $50 million house. Did I mention I've been selling a lot of my shares lately? I didn't? Good, don't print that."

In fairness it sounds like, at least from the FT article, that they are saying "stop or we're suing".

Which at least is a reasonable thing for a regulator to say.

I'm not precluding who is right and wrong here, just that the form of the request is not crazy.

In general, "stop or we're suing" is a reasonable thing for a regulator to say. But in this particular case "every cryptocurrency is a security, except Bitcoin" makes zero sense. Why wouldn't Bitcoin be a security?

It would make infinitely more sense if they said "Going forward, our interpretation will be that all cryptocurrencies are securities, and you'll need to become a real brokerage/exchange. Do this or we're suing." That would provide space for reasonable people to disagree, work it out in the courts, lobby Congress to legislate around the topic, etc.

But this version is non-sensical -- I simply can't imagine any reasonable persons would ever come to a meeting of the minds that Ethereum is a security but Bitcoin is not a security.

I agree. The only difference I can see is that Bitcoin never had the crazy fund-raising schemes and marketing blitzes that a lot of alt coins had. Same with the original ETH.

A federal judge recently ruled that XRP was a security when sold in some contexts but not others. And what coinbase is doing (at least with their basic trading platform, I know they have more questionable stuff going on as well) sounds like it wouldn't be a security for any coins.

> The court found that the “Programmatic Sales” did not satisfy Howey’s third prong because such buyers could not reasonably have expected that Ripple would use the proceeds of the sales to improve the XRP ecosystem and thereby cause an increase in the price of XRP. Citing SEC v. Telegram Group Inc., the court stated that this inquiry turns on the “promises and offers made to investors” and not each buyer’s motivation, making the blind bid/ask aspect of the transactions a key consideration. Ripple did not make any promises or offers because it did not know who was buying the XRP, and the purchasers did not know who was selling it.

https://www.mondaq.com/unitedstates/fin-tech/1348902/sdny-ru...

That article is full of quotes from Coinbase management. For comparison, here's the SEC statement.[1]

Another way to look at this is that the SEC offered Coinbase the opportunity to stop doing something illegal and walk away before the SEC brought the hammer down. That was a pretty good offer. These are criminal offenses.

Coinbase didn't. So, hammer time: Washington D.C., June 6, 2023 — The Securities and Exchange Commission today charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program."

Much of the US crypto industry had two great hopes for getting away with it. First, that they could get Congress to legalize what they were doing. Second, that they could get the Commodity Futures Trading Commission, instead of the Securities and Exchage Commission, to regulate crypto. The first possibility disappeared politically after the FTX scams were exposed, FTX went bankrupt, and politicians who accepted their campaign donations were in political trouble. The second disappeared when the SEC and the CFTC, with help from the Justice Department and the FBI, all landed on Binance, and started asking hard questions about where the customer's money was.

These companies are in deep trouble for a very simple and classic form of financial crime - treating the customer's money as their own. This is not about "tech". This is not about "crypto". This is not about "financial innovation". This is about plain old theft.

[1] https://www.sec.gov/news/press-release/2023-102

> treating the customer's money as their own

There is zero evidence that Coinbase does that. Notably, they are publicly traded with audited financial statements every quarter, unlike FTX, Binance, and friends.

We'll see if any evidence turns up in court. I think it's a good thing that Coinbase has audited statements to review and that the SEC is scrutinizing them.

If Coinbase is cooperative and absolved thanks to their diligence, they'll be further cemented as the standard for others in the industry to follow as regulators play catch up.

That's just the first and lowest bar - exchanges and broker/dealers not outright stealing the customer's money. Then come issues such as self-dealing, trading on an exchange that you you run, and similar market manipulation offenses.

Coinbase has issuer-side problems, too. Coinbase claims that their "staking as a service" offering is not a securities offering, but it looks a lot like a mutual fund. You buy in, and someone else manages the money. Just because the management strategy is pre-defined and passive doesn't matter. Passively managed mutual funds, such as index funds and ETFs, are still considered regulated investment offerings.

They won't win in the end. They're trading against their own customers.

It’s just wild to me that these billion dollar businesses are operating like they still exist on the dark web. Is it really not enough for these folks to be exorbitantly wealthy they also need to criminally defraud their customers? I suppose some habits die hard.

People worry about the classification into security or not, precisely because securities, if unregulated are a perfect vehicle for scams! Let me rephrase the howey test for you:

“Hey just buy this thing from me, and trust me that I will do something great with your money and eventually return it to you, I promise!”

Well, surprisingly there is a looong history of people exploiting a system like this to scam people. We learned, we have to regulate that kind of thing.

You don't get it. Regulation is always bad and dumb people falling for scams... that's just their problem :-)

Then everything is a security, because you can exchange anything for money while saying words.

Saying certain words, yes. The “Howey Test” referenced by GP is based on a ruling from SEC v. W.J. Howey Co., which reached the Supreme Court in 1946:

An investment contract exists if there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others."

https://www.investopedia.com/terms/h/howey-test.asp

If the words sound like that, careful.

No. "trust me that I will do something great with your money and eventually return it to you, I promise" is not part of the deal when you buy a token.

1: Some of the deals are "Someone built this thing which is now out of their control. But this thing can be used with these tokes. Want some?".

2: Some of the deals are "I built this thing which is now out of my control. But this thing can be used with these tokes. Want some?".

3: Some of the deals are "I built this thing which is now kinda out of my control. I might be able to change it later, but only if the community stays behind me. Anyhow, this thing can be used with these tokes. Want some?".

The SEC argues that many tokens fall into category 3 and that 3 is close enough to a security that the SEC should have a say in this.

These deal descriptions may be the ideal origin, but this is not how 90% of coins are dealt with today. Hard not to assume deliberate deceit from those claiming otherwise.

Some nocoiners equate cryptocurrency to tulips, but tulips aren't securities? On the other hand if you want a tulip, you will buy it on amazon, you won't grow it yourself.

“Hey just buy this thing from me, and trust me that I will do something great with your money and eventually return it to you, I promise!”

Sounds like SBF talking about "the box" on the Odd Lots podcast..

As an insider in Web3, the reality of blockchain platforms/foundations is that, majorly, they benefit a very specific group of investors, incumbents, and the governance is super centralized. Basic cronysm hidden beyond the decentralization placeholder, building super-advanced technologies that almost always has some more milestone to be delivered or adopted. Hundreds of similar ZK*, VMs, etc.

I don'like to like the SEC and I think a confrontation between the SEC, Coinbase, and other incumbents is positive. On the other hand I know that majorly the decentralization blah blah blah is just a distraction trick, that fraudsters execute faster than entrepreneurs in this space.

Finally, the real winner for transactions right now is Tether, the top used centralized stable coin in the ecosystem which volume greatly surpasses the top cryptocurrencies like Bitcoin and Ethereum. This is a fact.

I'm sorry but this largely reads like an advertisement. "As an expert I recommend this product!" with no backing of facts or actual informative explanation. Which is worrying considering the nature of cryptographic currencies that is being full of shady scams.

Where is the advertisement? What am I advertising?

you think that was an advertisement for Tether simply because it was mentioned? that wasn’t a recommendation it was an observation which is easily corroborated

responses to crypto asset posts are such a weird blindspot in this tech centric community for over a decade now, when does the conversation evolve? why don't we talk about Solidity versions here, or design patterns, or node software here.

such an obvious forum for it but instead we get these non-sequitur responses

It is because of a simple human affliction: Getting old.

> "Finally, the real winner for transactions right now is Tether, the top used centralized stable coin in the ecosystem which volume greatly surpasses the top cryptocurrencies like Bitcoin and Ethereum. This is a fact."

It's almost as if the "web3" product which people actually want is to move dollars illicitly and sometimes to spend them gambling on a 24/7 casino.

Everyone that uses cash are shaddy and only use it for illicit activities.

The pressure from the SEC and other regulators has definitely improved the space

We would all still be doing 2013-style cryptosecurities without them and most of the more refined infrastructure wouldnt have been developed

But this is a very shitty evolution of antifragility

It is still routing around those regulators, and the SEC will never achieve investor protection and the legislature should direct the agencies more holistically

The CEO of Coinbase has sold more stock in his own company than usual the last couple of months: https://www.quiverquant.com/insiders/COIN

Did you also notice that the price is 300% higher over the last couple of months?

I was speaking of sales in terms of share count, not dollar value.

300% up seems like a good time to sell more than usual

That mortgage isn't going to pay itself...

https://www.wsj.com/amp/articles/crypto-ceo-brian-armstrong-...

Here's an excerpt from one of the latest reports from SEC [1] about CEO selling stock:

> The transactions reported on this Form 4 were effected pursuant to a Rule 10b5-1 trading plan adopted by the Reporting Person on August 26, 2022, during an open trading window.

[1] https://www.sec.gov/Archives/edgar/data/1679788/000120919123...

Up until very recently, CEOs could always plan to sell then cancel or not based on insider information.

Doesn't mean much. With as much SEC scrutiny as the company is currently undergoing, he'd be a fool to run afoul of insider trading laws, which strongly implies that he's not in possession of any material non-public information. Besides, there are lots of reasons to sell, but only one reason to buy. Based on that chart, I'm far more interested in what Fred Ehrsam is thinking…

You don't think the CEO of the company has material non-public information???

I think if the CEO of the company has material non-public information and is trading based on it, then there is a 100% chance the SEC, which is already looking closely at the company, will come down hard on him, including disgorgement and massive fines, and even potentially working with the DOJ to file criminal charges and put him in prison—all of which they're dying to do in their effort to assert their authority over cryptocurrency, as Brian Armstrong is acutely aware if he has any attorneys worth half a damn.

So I believe he very probably does not currently have any material non-public information, or at the very least is not trading on the basis of having it.

I think the usual strategy to not run afoul of insider trading laws is to schedule the sales several months in advance.

It is, under rule 10b5-1. But so what? The CEO goes through with a sale of stock that was planned and announced months ago, at a time when he definitively had no material non-public information, and everyone goes shocked Pikachu face? It makes no sense.

Having to plan it months in advance takes some of the short term trading aspect away. You can have no idea what markets will be doing months from now.

You obviously have material non public information as CEO, but you could just as easily lose by trying to trade that as win when there’s such a long delay involved. Everybody else gets to see what your trade is, with plenty of notice, and can front run you.

> You can have no idea what markets will be doing months from now.

Knowing the market conditions for your trade is normal and expected. Taking away that information is a bad thing, a necessary evil at best.

How in the world can BCH (Bitcoin Cash) be a security if BTC (Bitcoin) isn't?

It's newer, less well recognized in general, and as far as a government Bitcoin node is concerned it does not exist. Bitcoin's case on not being a security is possibly based on the low likelihood of future incompatible changes and its track record and age.

It's exactly the same age as Bitcoin. What's a government Bitcoin node?

> It's exactly the same age as Bitcoin.

Don't be disingenuous. Bitcoin Cash didn't exist prior to 2017, when it forked from Bitcoin.

…though the Bitcoin Cash blockchain has valid txns going back to 2009 just like BTC. Everyone wants answers that are black and white, cut and dry. The world is a lot more grey.

If anyone, using your definition of coin age, can create a 14 year old crypto currency instantly, then clearly your definition is not useful.

> though the Bitcoin Cash blockchain has valid txns going back to 2009 just like BTC

By this logic, the U.S. dollar is millennia old, since it grafted onto an economy that used older currencies still on its adoption.

You need to read up on how blockchains work.

I think Gensler is a BTC maximalist and there isn't too much else to it.

Watching his mit lectures is edifying. He loves Bitcoin and thinks all ICO are scams. Of course most ICO are scams but not all…

One is decentralized, the other one isn't.

Why don't they just say that and outline their criteria for decentralization

Anything other than bitcoin is centralized. (BTW, ETH is PoS so it's inherently centralized despite the number of validators.)

Moreover, anything running on code coming from a source-code repository that has majority influence from one organization is actually centralized

How do you know what software people use? How people run asic miners? Is it supported by vanilla bitcoin too?

Even Monero?

Of course not, Monero is as decentralized as they come.

And with it's ASIC resistant POW it's arguably more decentralized than Bitcoin (and almost all other) POW based cryptocurrencies.

So, if I want to create a decentralized cryptocurrency what should I do? Name it "Bitcoin"?

It is impossible to create a decentralized cryptocurrency because it has already been created.

So, the fact someone created something means you can't create another thing of the same nature.

I hate to ask you that, but you're trolling, aren't you?

No. See https://news.ycombinator.com/item?id=36952101

That is a silly argument. Guess you also think there only exist one fiat currency because it already exists one so there can't be two of them?

That is the silliest point of all, because the concept of fiat currency is inherently associated with its plurality (given that fiat currencies are born out of countries, and there are many countries), but cryptocurrency, as a concept, came to existence to destroy all fiat. And the only way to do that is via 1 single cryptocurrency: the very first, the only one. And this is better understood once you understand this: https://en.bitcoin.it/wiki/BIP_0300 (which is not activated yet, and might never be; but once you understand its purpose, you will understand this HN thread)

I thought it's the opposite.

Because it's nonsense and if you wanted to actually lay out the criteria for this, it would be obvious. You'd have to start with "Who defines what BTC is" and the answer would be "one guy with commit access to the bitcoin core repo" and all pretense of "decentralization" disappears in a puff of vapour.

If "one guy with commit access to the bitcoin core repo" pushed a change that wasn't in the interest of miners and heavily invested groups, why would they install it?

Because if they're not using the same node software as the exchanges, they can't trade with other people trading the BTC instrument. The exchanges allocated the BTC ticker to "whatever the bitcoin core node software says it is" and that is defined by the one guy who has commit access to the bitcoin core repo.

If the exchanges can't trade BTC mined by miners, they will do whatever miners do.

Wrong, because even if the exchanges pick a chain that is completely ridiculous in terms of rules, say they permanently limit the tx throughput for the entire world to 3, or something absurd like this, and the exchanges and users who can see how absurd this is sensibly opt out of mining or transacting on that chain, the profit for defecting is great, because mining is a zero sum game.

As long as some suckers are trading actually liquid assets for the instruments on the sabotaged chain, it is economically rational for the miners to mindlessly rubberstamp the rules of the chain.

Which is exactly what we have.

We even have a proof of this in the wild!

Former Bitcoin Cash developer Amaury decided he wanted a subsidy to himself. He forked, forming his own extremely minority coin, Bitcoin ABC (now eCash) which pays him 8% of everything mined. Despite being very conclusively rejected, and the chain having undergone attacks, eCash still retains some value, and Amaury still gets to pocket a percentage of everything that gets mined.

The underlying code for that is the same as for BTC. So at any time, if the cabal thought cratering BTC would be worthwhile if they got to pocket enough of what remained, they could do it with complete impunity. All it'd take is the agreement of a very few people and a viable exit plan.

That's an interesting thing I didn't realize until not very long ago. If setting fire to 99% of the ecosystem allows you to pocket a fraction of the 1% that remains, and that works out well enough to not have to work again -- that's a very favorable tradeoff for a lot of people.

Right, this and BTC both, although Amaury's proposal was less insultingly stupid than the proposal that split BTC (I require an 8% of the coinbase donation to continue optimising this chain vs I require this chain be completely dysfunctional and useless, and force the intermediaries back into it for it to be of any utility at all, when the entire original purpose of the ledger was to disintermediate them)

That's not a whole lot better.

Foundry + AntPool alone make more than 51.7% of the hashrate. Next are F2Pool, ViaBTC and Binance with about 10% each.

So this "decentralization" requires what, the agreement of 2-5 parties.

Realistically, if the pools wanted, BTC core could be replaced because the software is mature and the big pools can trivially hire somebody to work on it if they had a need to.

The big exchanges probably also have some say.

But guess who doesn't? Anyone else. People running their "full node", or just random joes using the system don't really have a vote.

It's a very much top-down system with a few fat cats sitting on the top, and none of them were even elected, and quite a few are effectively anonymous.

Because the SEC does not make laws, it only enforces them. Congress makes laws, the court system interprets and establishes precedent.

This is just patently false and betrays a complete ignorance of how the cryptocurrencies work.

That's right. BTC is centralized at the repo level. Everyone runs the core repo and that's fully controlled by a few individuals. Miners are too scared to run anything else.

This right here. Bitcoin Core development is centralized, and anything contrary to what the High Priests of Bitcoin want, is said to be an “attack on Bitcoin”

Oh no, another one of those tinfoil hats BCashers that think that Blockstream has taken over the BTC-Core team, when it's not the case (see https://s3.cointelegraph.com/storage/uploads/view/acd600e03b... , from this article: https://cointelegraph.com/news/bitmex-research-unveils-who-f... ).

How does being centralized make something a security? Or decentralized a non-security? I feel like I must be missing something obvious but to me it sounds like saying "it's colored blue, so it's a security."

Because bcash is basically one guys product/scam. There is a head of bcash who is in charge of the project.

> The SEC said its enforcement division did not make formal requests for “companies to delist crypto assets”.

> “In the course of an investigation, the staff may share its own view as to what conduct may raise questions for the commission under the securities laws,” it added.

That’s insane.

The lesson here is that if you get any communication from the SEC, document it and reply back asking if that’s an official communication of the SEC or just the meaningless “view” of a staff member.

So they asked this before suing, and since that includes Ethereum it was probably them reaching as far as they possibly could rather than being on firm grounds.

“Ether, the second-largest cryptocurrency, which is fundamental to many industry projects, was absent from the regulator’s case against the exchange. It also did not feature in the list of 12 “crypto asset securities” specified in the SEC’s lawsuit against Binance.”

2018:

https://fortune.com/videos/watch/in-2018%2C-gary-gensler-sai...

The other thing you need to look at is exactly what Paypal offers:

Bitcoin, ETH, Litecoin, Bitcoin Cash.

https://www.paypal.com/us/digital-wallet/manage-money/crypto

Yes, their lawsuit had a vastly reduced list. The lawsuit is erring in the opposite direction, or at least trying to.

Matt Levine covers this...

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 SEC said its enforcement division did not make formal requests for “companies to delist crypto assets”.

So Coinbase didn't comply, as they had no legal obligation.

And now they’ve been sued by the SEC. Sounds like the process is working as intended. If you don’t want to heed the SEC’s informal advice, the question can be eventually sorted out by the court.

The SEC suit is for Coinbase’s staking-as-a-service, not all their trading activity.

EDIT: I was mistaken! Apparently they are being sued for the combined brokers, exchange, and clearing agency activities; in addition to their staking-as-a-service activities.

https://www.sec.gov/files/litigation/complaints/2023/comp-pr...

No, the latest SEC lawsuit against Coinbase is for running an unregistered securities exchange, broker and clearing house:

https://www.forbes.com/sites/emilymason/2023/06/06/coinbase-...

This is the very heart of Coinbase’s operations. If they’re found to be a securities exchange, they won’t be allowed to mingle the broker and clearing house functions, and the company would have to be split.

Thanks for the correction.

No such thing as safe CEX under the SEC, I guess. I do wonder what they imagine a legally-registered CEX would look like... only accredited investors can purchase and transfer crypto? Or, if it were up to Gensler, Coinbase would only sell Bitcoin?

Fantastic, force every centralized exchange to stick to being on-ramps.

This will a) Force people to learn self-custody & b) Force people to learn how to use decentralized exchanges.

Or c) make most people avoid cryptocurrencies all together

Bitcoin is not crypto.

That's a wild take. Can you explain why not?

Because they're having too much fun with the crowd bashing basically everything else in the space to realize that the "one true Scotsman" was in the room waiting the entire time.

This is a common bitcoin meme now, mostly to try to disassociate bitcoin from the negative associations that the term cryptocurrency has accrued over the last few years. It allows bitcoin fans to say things like "Yes, I agree, cryptocurrency is a scam!" and follow that quickly with "But have you heard about Bitcoin?"

It is, of course, nonsense. BTC effectively defines the term cryptocurrency, there is nothing about BTC which isn't found elsewhere in other cryptocurrencies, many of which are chain or code forks of BTC anyway. It's the biggest name, it was the first mover, but the claims that it is a separate phenomenon all of its own are relatively recent (or have increased markedly in recent months) and are IMHO hilarious.

I wish there was a similar feature in HN as the one I get with https://twitter.com/RemindMe_OfThis

I'm not sure why that would be of interest in this situation TBH, we're talking about the definition of a word, not a prediction of something that may or may not happen.

My point is that 10 years down the line I'm sure you could come back to this and understand why you were so wrong. (If you want to save some years of cluelessness, maybe read this https://news.ycombinator.com/item?id=36952101 )

And my point is that the definition of cryptocurrency is effectively "Bitcoin and its many offspring, clones and imitators".

That's not something that you need to wait to know about. That's what the word means.

It doesn't matter if you think bitcoin is amazing, and will take over the world, and is basically the currency of the gods. It doesn't even matter if your pipedreams about it destroying fiat currency come 100% true. Bitcoin falls within the category "cryptocurrency", and the attempt by yourself and other BTC fans to paint it as a separate phenomena is fucking ridiculous to observe.

If you truly believe that the first cryptocurrency is not a cryptocurrency, you might want to examine what has happened to your cognitive faculties. I'm not even saying that to be mean, you've stretched something beyond breaking point with the mental gymnastics there.

You've even said it in the post you linked to!

> And the only way to do that is via 1 single cryptocurrency: the very first, the only one

From your own fingers!

Seriously, this is embarrassing.

Because plural of the word cryptocurrency is a contradiction. You start to get it, son.

You contradicted yourself in your own comment that you linked to as backup for your argument. You described bitcoin as a cryptocurrency and then you told other people it wasn't. You're not self-consistent, let alone making any sense to others. Seek help.

Ok true, maybe I don't explain it very well; this guy does better than me: https://www.onceinaspecies.com/p/the-crypto-catch-22-why-bit...

Because no true ScotsCoin.

This is good for crypto.

Few understand.

I find I have a smoother experience moving funds through Tradeogre (once onboarded).

Why is it so difficult to just recognise crypto currencies as it's own new asset class?

because there's no need to do that. Most cryptocurrencies meet the Howey test which is used to judge if something is a security. It needs to require investment, be a common enterprise, and the expectation of profits.

Most cryptocurrencies are just token offering schemes that meet those criteria, a few like Bitcoin can make the case they're not securities. the crypto 'industry' wants a new asset class to avoid scrutiny, don't see much reason to give them one.

Sure, regulate them as securities, but the problem is the SEC has made it nearly impossible to actually register a cryptocurrency as a security.

https://policy.paradigm.xyz/writing/secs-path-to-registratio...

Doesn't seem that way to me. all you need to do is to file an S-1. The issue is an entirely different one which is obvious when you look at the case studies in the second post.

>"Paragon Coin Inc. (“Paragon”) was a Delaware company that raised $12 million from their 2017 ICO of “PRG Tokens” as part of a scheme to integrate blockchain technology to the cannabis industry."

The "PRG Token" is just a share in the company. This is a security you should only be able to buy on a registered exchange. The business obviously failed because blockchain in the cannabis industry is utterly useless, the company went broke, and the actual plan off selling their worthless tokens on a random internet platform didn't work out. So the SEC literally just did its job.

None of the companies mentioned on that site has anything resembling an actual business model, the point is merely to defraud public investors on opaque exchanges. In every single case the SEC almost certainly prevented harm being done to the public. This article makes an excellent case for maintaining the status quo.

It’s trivial to register as a security it’s done countless times a year.

The problem is that securities trading is regulated, and the coin base model of playing multiple roles itself is illegal

What about the investment of record labels in Music contracts with musicians?

If we are to look at the postulates of the Howey test it would probably pass them. I don't see them Trying to force record labels to register with the SEC.

Because they are not passing those investments to retail? Everyone involved is either (1) accredited investor (2) involved in the running of the business.

The contracts themselves are not traded directly. If they were they’d obviously be a security.

Large record labels do of course have stock in their companies which is a security and is traded.

You can buy shares in music royalties.[1] Those are investments registered with the SEC, and the issuer is an SEC-registered broker/dealer with FINRA regulation and SIPC insurance. Your song portfolio may be a dud, but the company behind this has to account for the money they collect, and people will be held responsible if it goes missing.

[1] https://www.songvest.com/how-it-works

The page literally says they aren’t registered. The copy is made to look like they are.

No, they registered their offering. Here are all the documents filed with the SEC.[1] There's a prospectus, and annual reports.

[1] https://www.sec.gov/edgar/search/#/q=SONGVEST

Filing stuff on EDGAR isn't registration under the Securities Act.

>because there's no need to do that

There is actually alot of need. The propositions that Crypto caters for would become worthless if we applied securities laws to them.

I think having broad disclosure about a thing you’re trying to collect money so that you can make more money is a good thing, even in crypto.

Is that supposed to be sarcastic?

If you open that can of worms I think the question will very quickly be whether such an asset class should just be outright banned.

To me it’s still an open question if cryptocurrencies are inherently a (distributed) scam. At least the ones based on proof-of-work.

Both cash and securities are regulated in a way that ties them to the creation or storage of (real-world) value. Proof-of-work cryptocurrencies ties both the creation and trade of the asset with destruction of value (energy). Which inherently makes them toxic. Regulating cryptocurrencies to become non-toxic might make them de-facto illegal.

> Both cash and securities are regulated in a way that ties them to the creation or storage of (real-world) value.

Did we go back to the gold standard during the writing of this comment? Last time I checked there wasn't any backing of fabricating new dollars except for the sheer trust in the US government.

The ability of the US government to tax any companies or individuals residing in the US seems pretty “real” (more-so than gold anyway..)

Let’s keep it at “real” with the quotation marks. Gold tends to last longer than your average nation state.

This is not a problem when the promises of a nation state only need to last as long as the nation state itself.

> Gold tends to last longer than your average nation state.

I’m not sure how that’s useful. The capability to produce goods and services seems a whole lot more real to me in terms of value than gold (the value of which would collapse anyway if modern economy did).

In theory can have currencies directly backed by oil, wheat or copper if you don’t want fiat for some reason. Would still be more ”real” than gold.

> only need to last as long as the nation state itself.

1$ from the 50s is not worth much in the 80s and even less today. Seems like that should be a much bigger concern than the longevity of the state itself.

> In theory can have currencies directly backed by oil, wheat or copper

That is to some degree what USD is ("Petrodollars"):

https://www.investopedia.com/articles/forex/072915/how-petro...

You can’t redeem them for a fixed amount of oil so I would say this is quite different.

> there wasn't any backing of fabricating new dollars

Wow that’s compelling.

> except for the sheer trust in the US government

Oh, you mean “except for” the single most powerful entity on planet earth

You need only to trust that the US government has 11 aircraft carriers and thousands of nukes.

Trade creates value. A toxic asset is an asset with a frozen market. Ironically, banning crypto would make the asset class toxic.

Because it's not a different asset class..

Would tax-sucking regulators and governments who want power to dominate the public want something decentralized and free?

> decentralized and free

There is no such thing as a free lunch/currency/...

Human society is hierarchical because otherwise we have chaos. Or worse, completely self-appointed, unaccountable hierarchies.

Human society abhors vacuum.

Because they are not. There’s no inherent value so classing them as securities makes a lot of sense- just like derivatives and other financial instruments

Why should they, if they’re just reproducing essential properties of existing asset classes?

“Doing X on a slow distributed database” is not a get-out-of-jail ticket if X happens to be already illegal or heavily regulated.

Because it's all been reimplementations of extremely well known and understood financial instruments which are regulated for excellent historical reasons.

The only technical innovation of cryptocurrencies is that you can now create a new unregistered penny stock at the press of a button and spam the regulators with violations. There's ~7000 equity stocks (you know, just stocks) in the US and there's somewhere >1,000,000 defi tokens.

This did not in fact achieve regulatory escape velocity.

> Why is it so difficult to just recognise crypto currencies as its own new asset class?

Crypto is a dead ringer for 1920s securities fraud. Whether it's a new asset class is irrelevant. It's plagued with the same problems as unregulated securities shilling, which means they will share a common solution.

This is all moot now of course, after the XRP ruling, that secondary sales of assets don’t make them securities.

The underlying assets are also not securities.

No paywall version:

https://archive.li/2023.07.31-040202/https://www.ft.com/cont...

I hate crypto bros and crypto land, it's a cesspool of scammers with almost zero value to it.

That said, isn't it a bit concerning that we have an agency that both writes AND enforces the laws? Why is this aspect unlike everywhere else in society?

The FAA does this as well (and it works reasonably well).

I’m less familiar with the details, but it seems like the FTC, FDA, EPA, and OSHA all have significant rule-making and rule-enforcing power as well.

SEC only writes regulations not laws. They can't uphold penalty unless they can enforce regulations with laws. So when they write a regulation it has a law backed by the government supporting the regulation. It can be overturned at anytime if found that it imposes on laws or constitutions.

Here’s my issue with coinbase.

If I send my crypto to coinbase, I no longer own my crypto. Coinbase now owns it and can do whatever they like with it. But they market themselves as providing crypto services and as selling crypto when in fact they are just selling numbers in their internal database.

So users of Coinbase are clearly being defrauded. They think they own crypto but they don’t.

Wait till you hear about the DTCC

Difference is securities are heavily regulated, it’s a weird system but works. With crypto self custody is not only possible but preferred

Crypto Bros on Linkedin: Bitcoin is surging, don’t miss the boat.

It’s been like that for months the now - dodgy crypto is positively getting murdered, finally, by regulators and as a result the die hards who don’t want to leave it behind are moving to the reserve currency of the economy, BTC.

By actual activity, it seems to me like anything besides maybe ETH is actually a security. I can't find a reason to single out BTC here, other than it being the oldest and by far more well known.

ICO via email

Could you elaborate with a verb? I'm not sure what you mean.

ETH began by selling ETH for BTC via email.

This was one of the first ICOs, before the phrase.

Looks like 12ft.io has stopped working.

Try archive.is: https://archive.is/https://www.ft.com/content/1f873dd5-df8f-...

It's working again.

Wait! Why not bitcoin?

what if the SEC was the real criminals all along?

Sure, any moment now we’ll find out that FTX and Terraform Labs and all the other jailed and fugitive crypto founders were just victims of the SEC’s machinations.

'What is the robbing of a bank compared to the founding of a bank?'

You think Coinbase is on par with FTX?!

Saw this like 10 years ago. Crypto is a scam or well a vehicle for scams. SEC should have been on this sooner.

Hate to take the SEC’s side, but once Coinbase started trading DOGE, they lost the moral high ground.

Well, in a libertarian world, the moral high ground is that we should be able to trade anything -- who is the SEC to tell us what we can't trade? It's almost like freedom of speech.

Plus, I don't think consumers should be protected from dogecoin --- no layman in their right mind invests in doge with the expectation of profit (from common enterprise). Bitcoin is more of a security than doge will ever be.

For the most part the SEC doesn’t tell you what you can and can’t trade.

It does however have laws around registration of the security, who can and can’t purchase it under a given registration, disclosure rules, conflict of interest rules, and so on.

> "It does however have laws around registration of the security"

This sounds a lot like the SEC dictating what can and can't be traded in the modern day. We can't trade something if there isn't an exchange for it.

> “no layman in their right mind invests in doge with the expectation of profit (from common enterprise)”

Influencers pumping the coin on Twitter is a common enterprise. You don’t think people bought DOGE because they hoped those influencers would continue what they were doing?

I mean, everyone hyping up kale as a supergreen on their social media doesn't make Kale --- the vegetable --- a security. Likewise, people shill GOLD on twitter all the time. Is gold a security?

If kale and gold are securities under the current interpretation of the howey test, then the howey test needs to be rewritten.

It's immoral to trade in joke currencies? Lol you could have picked any obvious swindle promising to revolutionize finance and announcing fake partnerships with Microsoft or Walmart. At least pick an unregistered security or something.

Why? There is no way DOGE passes the Howey test. It might be the least "security" crypto of them all.

I think you're probably making a joke about how DOGE is funny, and it is, but if you're not, I'm curious what your reasoning is.

Why don’t you quote the creator of DOGE on the topic.

I also rely on congenital, pathological, enthusiastic liars aka politicians to decide what is moral to trade! Thankfully they have our back and have our best interest in mind.

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