There's a line of critique that says it's unfair for the government to have allowed Coinbase to break the law for so long, and then change their mind.
But in the American system, the burden of proof is on the government (SEC) to prove the behavior is actually illegal and until then, Coinbase was presumed innocent and had the freedom to continue doing what they want.
What's frustrating for crypto advocates is they were unable to use the 5yr analysis period to convince society to legalize their behavior (in the way that Uber/Lyft were able).
But this is one of the things the American system gets very right. A "trial" period where new behavior is allowed until the Executive branch can either prove its illegal, or Legislative branch can explicitly make it legal. It's an expensive system that achieves a balance between regulation and experimentation.
I mean Coinbase literally sued the SEC to get them to define more appropriate rules. So I have a hard time buying that Coinbase just ran away with it and didn't try to get things more legalized. They realized there was jeopardy in how they operated and wanted to get things clarified.
> 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.
They need to do more than try to get things more legalized. They have to succeed. Or they get sued for breaking the law. If people don't agree that it should be legal, then oh well. That's the risk.
The justification will be that regulation stifles innovation, which I always conclude that America is a business-first country, humans after, and caring for the lives of people is bad for business.
It seems like there's a US government mandate to kill crypto in the US. This energy would've been better at the time of peak-ICO, directed at the worst offenders.
Going forward I would hope to see the SEC put more of its energy toward people who did ICOs involving untrue statements and legal violations as key parts of their pitches, as well as people who did SPACs with egregious forward projections.
This is such hyperbole. If you're going to trade securities just register properly and follow the regulations. And yes crypto is a security. The SEC is just doing their job when they fail to register yet trade anyways.
Saying "just register properly" is insane at this point. Coinbase has spent millions in legal fees over the past decade trying to get the SEC to publish how to do exactly that, and the SECs repeatedly refused to clarify how to do that. So much so that Coinbase sued the SEC for ignoring process in April, and Gensler got pulled into a congressional hearing a couple months ago where several congress people attempted to get him to clarify rules, and he refused to do so.
The SEC wants to "rule by enforcement", and are doing everything in their power to refuse to define clear rules, because then people would be able to follow them, and the SEC would no longer have the power to leverage enforcement actions against them.
But on the other hand, I'm extremely glad I don't live in the USA.
I don't believe the SEC's definition of a security or the rules they put in place are a net good. I would not like to live under the SEC and other US financial regulator's restrictions — not just relating to crypto, but equity crowdfunding, retail derivatives platforms, and more, too. And I would not value the so-called "protections" that target the easiest to apply rules to over the worst offenders, and that have done little or nothing to provide clarity and end regulatory ambiguity. I am not protected from killing myself skiing, or losing all my money gambling, so I should not be "protected" from accessing certain financial assets/products — especially not to the extent and in the way that this happens in the US.
I think many (perhaps almost all) other nations have better definitions around securities, and better, more proportionate, and clearer rules for them (of course probably none are perfect, but that is true of nearly all rules). Some of those countries have even accepted that many of their citizens would like to experiment with these new technologies, and might like to see a different model for their regulation, to allow this experimentation, and tried to create rules to allow this, realising that stability and stasis should not be the goal above all else.
The only way the US government can effectively enforce their regulations is to kill the exchanges and then try to make sure that organic trade can't happen. How else can they exert control over something like Monero except attempt to kill it? What is option B? It is not hyperbole to observe the obvious; something has to give.
It is notable that the crimes here are victimless. I don't recall if I have ever bought anything on Coinbase; but the VIOLATIONS section of the complaint isn't accusing them of anything I care about in my capacity as a crypto trader.
other very popular industries could be selling securities, if you actually apply the test. Tell me the flaw in the following, and if there is no flaw, why did the SEC never go after them to make an example:
All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:
1) People (kids, in fact!) buy Yu Gi Oh trading cards
2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)
3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).
4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!
5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
Yu Gi Oh Abridged series even lampooned this, to great comedic effect.
Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?
So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?
That's because (as with the release of every new shitcoin) it's just a scam to raise money for the "investors" - by which I mean insiders - and dump it on retail.
The problem with crypto was that non-crypto people got into it. It's all fun and games when you use crypto to pay for things like a currency but the second people start hodling because they speculate its value will increase it becomes a security.
While true it would be best if the SEC enforced rules the second they were broken, when have you seen a government agency act fast? It took a literal collapse of FTX for the SEC to get involved.
I wish the SEC would go after MM manipulation in the current stock market. Get rid of Fail to Delivers altogether and stop allowing obvious pump and dumps to prop up margins. But that is just me. as I'm not heavy into crypto.
Cryptocurrency is a threat to the consolidated power of the Central Banks. Yes, "they" will mandate that it be killed, or at least that it's illegal to exchange fiat currency for crypto or use it as legal payment for goods and services.
Cryptocurrency is a general threat to "society". It enabled a lot of bad actors and issues that did not exist before, and it is also in contrast to a lot of previous legislation created specifically to protect the average citizen. We should all treat it as a threat.
There is a US government mandate to kill violations of securities law. If "crypto" can't exist without crime, that's hardly the SEC's fault.
The SEC can, and should, go after ICO scammers, but there would be zero ICO scammers without the help of Binance, Coinbase, and friends allowing their illegal trade.
Why let COIN IPO in the first place? Nothing has changed really with cryptocurrency, rubes were more interested when COIN IPO'd than they are now. Did everyone cash out and now it's time to protect people?
> 111. As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”
From a cursory review, the Coinbase complaint doesn't include the Coinbase "Compliance Officer" declaring that they are running a "fking unlicensed securities exchange in the USA bro", so they are already off on stronger footing than Binance.
Frankly I think anything crypto-related is very unpleasant to discuss on HN (by the way why is this site called HN? Why not just "American tech news"?)
Any sign of damage done to crypto industry is met with fierce jubilation you could only compare to comments on fresh Ukrainian casualties in some Z channel in Telegram. There is zero interest in understanding the specifics. The most embarrassing, pedestrian, knuckle-dragging cases against privacy, straight out of Four Horsemen of Infocalypse, are trotted out (same as we're increasingly seeing wrt putative risks from AI; oh no, power too great for peasants to handle, we need regulation!).
I understand the extreme seediness of crypto and affiliated organizations, the intrinsic association with crime, obnoxious promotion, NFT era, SBF nonsense and more. But the degree of intellectual bankruptcy in HN discourse is at least equally repulsive and strongly suggests that there's a lot of jealousy underneath all this schadenfreude and pretense of indignation.
I think the world should have some slack. It should be hackable. There must be a crack in everything, because systems of power go bad over time. If Americans have such complete religious faith in their system, that is their choice. They attempt to enforce extraterritoriality of their regulation a bit too often, though, and they are moving in lockstep with other major hubs of power.
Crypto has enabled me to survive and escape a bad place, at least once. It allows people in countries less functional than "the West" live with a modicum of dignity, as is sometimes discussed – and met with incurious "scrutiny" to the tune of "BBC article or didn't happen" – here [1] [2]. It would be a shame if in another decade the idea that you, a regular citizen of the world without any special authority, could remotely transmit value to other people completely at your own discretion and in complete privacy (so long as you follow certain rules), without say-so of appointees of Washington or Brussels or Beijing, becomes as absurd as going outside without an always-on tracker device.
"Since at least 2019, through the Coinbase Platform, Coinbase has operated as: an unregistered broker"
Anyone else have a problem with the latency of our government? This is a law from 1934 that the SEC exists to enforce. You'd think they be a bit better at the job. This seems very slow to respond.
In 1934, things moved slowly. Scaling was entirely manual and mostly linear, if you were an unregistered broker, to handle a thousand times more transactions you needed to hire approximately thousand times more brokers, and changes like that would get noticed quickly. Someone in 1934 might have been proud of how fast-paced they could operate, given that in the preceding two decades the telephone had exploded in popularity. They could even place a trans-continental phone call, and communicate with someone a thousand miles away; imagine that!
Governments designed and tested in the 1700s and 1800s should not be expected to anticipate and seamlessly cope with technological change that is accelerating faster and faster.
The USA’s governance system is literally designed by the founders to make slow change. They were fearful that quick legal/governance changes would have less than desirable consequences.
I don't think the 1934 point was where the latency came from. The question is why did it take 4 years for the SEC to bring action against Coinbase. They weren't exactly hiding their behavior. At best, it seems that the SEC was waiting so that they could claim more damages?
We don't know exactly what communications SEC and Coinbase have had over the years.
We do know Coinbase hired lots of very expensive lawyers to handle that relationship, so this wasn't exactly a surprise to the company. They've been stalling and preparing for years.
Because before FTX, the political mood was laissez-faire. And now it is "bring me their heads".
Say what you like about crypto, coinbase have been 200% upfront, honest and compliant in their businesses and the SEC were A-Ok with that until 1 month ago.
I think the feds use a different definition of "good at the job" than you do. They are slow, but they are inexorable. They very rarely lose once they bring charges.
Perhaps this should change. I can understand taking a while to decide to bring charges against Coinbase, but ten years?
They have given very clear guidance for years: basically all cryptocurrencies are securities. Conbase just didn't like what they said.
Besides, it's not the SEC's job to give free legal consultation. Nowhere in our legal system does the government have an obligation to send experts to consult with violators to help them stop violating the law. These companies have lawyers who are supposed to keep them in compliance.
> They have given very clear guidance for years: basically all cryptocurrencies are securities.
Please point out a single time where Gensler makes a claim even remotely similar to this. The SEC does literally everything else except for giving guidance on which cryptocurrencies are securities.
And what are you to do, as an exchange trying to maintain compliance, when the CFTC says assets determined to be securities by the SEC are, in fact, commodities.
It’s more like asking a cop if you can sit somewhere and they give you a look and won’t tell you, but 3 years after you sit down they book you for trespassing.
It's not that weird, its there job is to enforce not teach. The FDA, EPA, etc set the rules and enforce those rules. They do not hold a company's hand following those rules.
Just because we decided it that way arbitrarily, right? It's not some natural law that this is how it should be, that the rule makers can't possibly explain rules, only enforce them. I mean, you could make the same argument about the IRS and Congress with respect to taxes: it's not their job to make it easy on us, just to punish us when we make a mistake on our tax returns. I mean, I guess... But just because we wrote the law that way. Plenty of other places have put 2 and 2 together and figured out that if the goal is to collect taxes and not to enrich TurboTax, then they can make the process dramatically simpler.
Similarly, if your actual goal is to reduce the occurrences of "bad behaviors" (which is presumably the whole point of creating these rules to begin with), then it doesn't seem that unreasonable to have someone try to lay it out clearly, right? If for no other reason than maybe a bunch of people negatively affected by these behaviors would have been spared since there wouldn't have been this grey area to operate in for so long? That's who we're ultimately doing this for, right? The public that is hurt by securities that are misrepresented? Now, if your goal is to punish people, then yes, the current system makes more sense.
I mean, the US federal government doesn’t have an internally consistent stance on cryptocurrency regulation, with different agencies in conflict as to whether a securities or commodities regulatory framework applies. And no consistent clear determination has been made. It’s currently effectively impossible to get actionable legal advice about how to follow the rules, which is different to the situation with the FDA, EPA, et al.
You could say that the conclusion is then that it’s all illegal full stop and that all cryptocurrency related businesses in the US should cease operations immediately. But if that’s the case, you’d hope that would be clearly expressed somewhere. Right now, the rules (or rather, the probabilities of facing adverse legal action) are being inferred after the fact by analysing patterns of enforcement action.
FDA is actually pretty collaborative with pharma companies. But also pharma companies’ business models aren’t entirely dependent on circumventing regulation and they aren’t openly combative with regulators.
No argument about that, but Coinbase has been begging for a clear set of rules to follow for ages. Now SEC is suing Coinbase for not registering with SEC as a broker/exchange, but the SEC itself wouldn't let them register because they(the SEC) couldn't decide if crypto is a currency or security. The whole thing is a political fallout of the FTX crisis.
enforce what exactly? The rules are made up. Gensler is truly a clown, he doesn't have a clue what he is talking about. Look at this, that was just one month ago, about Ethereum, the second largest and he cannot give a clear answer https://twitter.com/sassal0x/status/1648338351832064003
So again, what shall the SEC enforce exactly? If you don't see the endgame here ...
“I’m trying to interface my sewage pipes with the municipal drinking water supply, but for some reason the water company are being real dicks about it”
Especially when your primary product and money maker is regulatory arbitrage, you better hire an army of lawyers to defend yourself against situations like this.
Readit News
But in the American system, the burden of proof is on the government (SEC) to prove the behavior is actually illegal and until then, Coinbase was presumed innocent and had the freedom to continue doing what they want.
What's frustrating for crypto advocates is they were unable to use the 5yr analysis period to convince society to legalize their behavior (in the way that Uber/Lyft were able).
But this is one of the things the American system gets very right. A "trial" period where new behavior is allowed until the Executive branch can either prove its illegal, or Legislative branch can explicitly make it legal. It's an expensive system that achieves a balance between regulation and experimentation.
By which they mean "we don't like the ones you told us about".
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.
Coinbase: "Plz make rules."
SEC: "We already have them."
Coinbase: Yes, but we don't like those ones."
The lack of any meaningful oversight of this stuff for so long is a bug, not a feature.
Going forward I would hope to see the SEC put more of its energy toward people who did ICOs involving untrue statements and legal violations as key parts of their pitches, as well as people who did SPACs with egregious forward projections.
The SEC wants to "rule by enforcement", and are doing everything in their power to refuse to define clear rules, because then people would be able to follow them, and the SEC would no longer have the power to leverage enforcement actions against them.
But on the other hand, I'm extremely glad I don't live in the USA.
I don't believe the SEC's definition of a security or the rules they put in place are a net good. I would not like to live under the SEC and other US financial regulator's restrictions — not just relating to crypto, but equity crowdfunding, retail derivatives platforms, and more, too. And I would not value the so-called "protections" that target the easiest to apply rules to over the worst offenders, and that have done little or nothing to provide clarity and end regulatory ambiguity. I am not protected from killing myself skiing, or losing all my money gambling, so I should not be "protected" from accessing certain financial assets/products — especially not to the extent and in the way that this happens in the US.
I think many (perhaps almost all) other nations have better definitions around securities, and better, more proportionate, and clearer rules for them (of course probably none are perfect, but that is true of nearly all rules). Some of those countries have even accepted that many of their citizens would like to experiment with these new technologies, and might like to see a different model for their regulation, to allow this experimentation, and tried to create rules to allow this, realising that stability and stasis should not be the goal above all else.
It is a shame to see this direction of travel.
Saying you haven’t done it and not letting you do it is a bit of a catch 22.
And none of this addresses the defi ecosystem either. As an end user, can I access a defi app deployed by a non-US entity?
It is notable that the crimes here are victimless. I don't recall if I have ever bought anything on Coinbase; but the VIOLATIONS section of the complaint isn't accusing them of anything I care about in my capacity as a crypto trader.
All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:
1) People (kids, in fact!) buy Yu Gi Oh trading cards
2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)
3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).
4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!
5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
Yu Gi Oh Abridged series even lampooned this, to great comedic effect.
Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?
So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?
SPACs were just as a bad as the ICOs and almost all of them fell 90% since 2020 after their year long pump and dump mania during the retail euphoria.
The problem with crypto was that non-crypto people got into it. It's all fun and games when you use crypto to pay for things like a currency but the second people start hodling because they speculate its value will increase it becomes a security.
While true it would be best if the SEC enforced rules the second they were broken, when have you seen a government agency act fast? It took a literal collapse of FTX for the SEC to get involved.
Huh? So USD is a security now? And so is every other currency in existence?
Criminals gonna criminal where it makes money.
Peak-ICO means peak resources to spend on legal defense. The best time is after at the end of a bear run.
The SEC can, and should, go after ICO scammers, but there would be zero ICO scammers without the help of Binance, Coinbase, and friends allowing their illegal trade.
Bitcoin doesn't fall under the securities definition, so they can't go after that, at least not in this way.
The Binance complaint: https://www.sec.gov/files/litigation/complaints/2023/comp-pr...
Which contained the legendary line:
> 111. As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.”
From a cursory review, the Coinbase complaint doesn't include the Coinbase "Compliance Officer" declaring that they are running a "fking unlicensed securities exchange in the USA bro", so they are already off on stronger footing than Binance.
Dead Comment
Any sign of damage done to crypto industry is met with fierce jubilation you could only compare to comments on fresh Ukrainian casualties in some Z channel in Telegram. There is zero interest in understanding the specifics. The most embarrassing, pedestrian, knuckle-dragging cases against privacy, straight out of Four Horsemen of Infocalypse, are trotted out (same as we're increasingly seeing wrt putative risks from AI; oh no, power too great for peasants to handle, we need regulation!).
I understand the extreme seediness of crypto and affiliated organizations, the intrinsic association with crime, obnoxious promotion, NFT era, SBF nonsense and more. But the degree of intellectual bankruptcy in HN discourse is at least equally repulsive and strongly suggests that there's a lot of jealousy underneath all this schadenfreude and pretense of indignation.
I think the world should have some slack. It should be hackable. There must be a crack in everything, because systems of power go bad over time. If Americans have such complete religious faith in their system, that is their choice. They attempt to enforce extraterritoriality of their regulation a bit too often, though, and they are moving in lockstep with other major hubs of power.
Crypto has enabled me to survive and escape a bad place, at least once. It allows people in countries less functional than "the West" live with a modicum of dignity, as is sometimes discussed – and met with incurious "scrutiny" to the tune of "BBC article or didn't happen" – here [1] [2]. It would be a shame if in another decade the idea that you, a regular citizen of the world without any special authority, could remotely transmit value to other people completely at your own discretion and in complete privacy (so long as you follow certain rules), without say-so of appointees of Washington or Brussels or Beijing, becomes as absurd as going outside without an always-on tracker device.
Yet this is still what crypto is about.
1. https://news.ycombinator.com/item?id=35461837
2. https://news.ycombinator.com/item?id=32291810
Anyone else have a problem with the latency of our government? This is a law from 1934 that the SEC exists to enforce. You'd think they be a bit better at the job. This seems very slow to respond.
In 1934, things moved slowly. Scaling was entirely manual and mostly linear, if you were an unregistered broker, to handle a thousand times more transactions you needed to hire approximately thousand times more brokers, and changes like that would get noticed quickly. Someone in 1934 might have been proud of how fast-paced they could operate, given that in the preceding two decades the telephone had exploded in popularity. They could even place a trans-continental phone call, and communicate with someone a thousand miles away; imagine that!
Governments designed and tested in the 1700s and 1800s should not be expected to anticipate and seamlessly cope with technological change that is accelerating faster and faster.
We do know Coinbase hired lots of very expensive lawyers to handle that relationship, so this wasn't exactly a surprise to the company. They've been stalling and preparing for years.
Say what you like about crypto, coinbase have been 200% upfront, honest and compliant in their businesses and the SEC were A-Ok with that until 1 month ago.
Perhaps this should change. I can understand taking a while to decide to bring charges against Coinbase, but ten years?
Some context:
https://twitter.com/coloradotravis/status/166588123383269785...
Besides, it's not the SEC's job to give free legal consultation. Nowhere in our legal system does the government have an obligation to send experts to consult with violators to help them stop violating the law. These companies have lawyers who are supposed to keep them in compliance.
(Conbase was a typo, but I'll leave it.)
"Free"? They are literally funded with tax money. They work for citizens and companies. It's their literal job.
It's like saying "you can not ask a policeman about if you can use this kind of trailer on your car, he is not paid for that advice"
Please point out a single time where Gensler makes a claim even remotely similar to this. The SEC does literally everything else except for giving guidance on which cryptocurrencies are securities.
https://www.youtube.com/watch?v=h_oAr4wn7M4
https://www.reuters.com/legal/sorry-crypto-world-sec-isnt-ba...
Similarly, if your actual goal is to reduce the occurrences of "bad behaviors" (which is presumably the whole point of creating these rules to begin with), then it doesn't seem that unreasonable to have someone try to lay it out clearly, right? If for no other reason than maybe a bunch of people negatively affected by these behaviors would have been spared since there wouldn't have been this grey area to operate in for so long? That's who we're ultimately doing this for, right? The public that is hurt by securities that are misrepresented? Now, if your goal is to punish people, then yes, the current system makes more sense.
You could say that the conclusion is then that it’s all illegal full stop and that all cryptocurrency related businesses in the US should cease operations immediately. But if that’s the case, you’d hope that would be clearly expressed somewhere. Right now, the rules (or rather, the probabilities of facing adverse legal action) are being inferred after the fact by analysing patterns of enforcement action.
So again, what shall the SEC enforce exactly? If you don't see the endgame here ...
Dead Comment
They also haven't been clear or consistent.