If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like Bitcoin is no ordinary security nor a financial instrument. It is not a claim on something else, even less so than a traditional bank note. It is more like a commodity. Since when is "aluminum" a security?
A crypto currency business however may be engaged in trading of crypto currencies which are negotiable financial instruments, and a stable coin that is a claim on a traditional currency is an example of that. A stable coin bears a direct relationship to a bank note. It is a claim on something else. It is not really an investment though, so not much of a security.
And then of course there are more creative negotiable financial instruments which are definitely securities. Options, derivatives, swaps, futures, and the like.
The Supreme Court has a broader definition of securities, that involves a promoted investment in a "common enterprise", but it is unclear that a commodity currency really is a common enterprise like a corporation is for example. It seems unlikely to me that Bitcoin as such would even meet that definition of a security. But other products offered by crypto currency exchanges might.
SEC isn't suing Coinbase over Bitcoin. They're suing under two things:
1. Unregistered exchange for several tokens the SEC believes are securities:
> This includes, but is not limited to, the units of each of the crypto asset securities further described below—with trading symbols SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO—(the “Crypto Asset Securities”).
2. Unregistered sale of securities related to the staking program for XTZ, ETH, ATOM, ADA, SOL. This in particular has a full, point-by-point rationale for why they are defined as securities under the Howey test (in short, you deposit money, and the terms make clear that it's Coinbase's money at that point, not your money, so definitely an investment; staking involves a common enterprise; and it's clearly advertised as making you money based on Coinbase doing stuff with your investment).
Maybe Coinbase should have listened to its own advisors on how to tailor a prospectus to not meet the Howey test definition of a security... or maybe their advisors didn't do a good job in the first place!
Very good points. People often go a long way to argue against the Howey test. The best example is Howey Co case.
If someone is a lawyer dealing in securities and acting as an advisor I would have expected them to be familiar with the law. Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced.
The SEC provides NO guidance on what is or isn't a security. We have the Howey test to go off of. There is no way to register, no legal way to achieve anything that should be legal in a democratic capitalist society. You just have the threat of an SEC lawsuit on nebulous terms. It's completely fucked up.
Another incredibly important point is the $1 million net worth and $200k income based test for becoming an "accredited investor" is racist, classist, sexist, and evil. People should have the right to invest their money how they see fit. If you want people to sign some kind of disclosure, or some kind of term sheet that makes it very clear to a retail investor what they're getting into, fine. But the law as it exists is outrageously undemocratic.
In regards to the SEC, a system that was built for 1933 is not even relevant in a world where you can spin up a million new tokens in 10 seconds and deploy to 24/7 worldwide markets in 5 minutes from anywhere.
Keeping the 1933 SEC Act in tact in 2023 is like trying to keep Prohibition going even though it's raining whiskey from the sky.
I think the real crux of the issue is that these instruments were designed to be confusing to regulate and, alas, they're confusing to regulate. The error was in thinking that a confused regulator says "I don't understand what's going on here, carry on and rest easy" rather than what actually happens: "I don't understand what's going on here, and until I do -- on my schedule, not yours -- your business is always at risk of falling on the wrong side of my reasoning."
I don't think the pure commodity coins (layer 1 networks like btc, xch, etc) are confusing at all. You do work and get rewarded with a digital commodity. It’s exactly like digging up gold, or tapping a tree for maple syrup.
Then a bunch of crypto anarchists showed up and started speculating that these coins would be worth a lot in the future because we could topple the financial hegemony by their powers combined. Okay whatever, still commodity trading.
Then we started getting all these fake Ponzi coins that are standing in for something else. That’s a security.
What is possible with e.g. BTC is that it’s easy to trade at scale. A commodity that’s easy to trade isn't a security, but if you squint it kinda looks like one. Regardless, it’s not crypto’s fault that regulators are having a hard time understanding it. That’s the regulators’ and lawmakers' problem. (So elect people into power who are your peers, and who aren't 70 years old and have no hope of anything more than a cursory understanding world from the last 20 years.)
But, of course they’re not going to stand aside while people get scammed. Only the anarchists want that. The rest of us just want crypto to be treated fairly.
The only question here is whether cryptocurrency is a security or a commodity. Securities fall under regulation by the SEC (SECURITIES and Exchange Commission). Commodities are regulated by the CFTC (COMMODITIES Future Trading Commission). SEC Chair Gensler agrees that Bitcoin is a commodity, but thinks everything else is a security.[1] Securities are much more tightly regulated than commodities. The SEC is making it clear with these complaints that they believe certain cryptocurrencies are securities.
A court might disagree. The CFTC could potentially disagree, although yesterday's agreement makes me think they may have given up on that to some extent. But I actually think it's pretty clear that any cryptocurrency project offering a reward for "staking" or similar is a security.
You capitalized the wrong word. The CFTC is the Commodities FUTURES Trading Commission. After all, a commodity is defined as anything traded with a futures contract (except for onions and movie tickets)!
A whole lot of things that aren't commodities in common parlance are within the jurisdiction of the CFTC because they are traded with futures contracts. This includes some securities. A whole lot of things that are commodities in common parlance are not within its jurisdiction, as the CFTC only deals with futures contracts.
Orange juice concentrate is a commodity by any definition. The CFTC regulates futures contracts on orange juice concentrate. It does not regulate its production, sale, transportation, or anything else unrelated to futures contracts. That is the job of the USDA, FDA, DoT, and so forth.
Stocks are securities. As they are traded with futures contracts, they are also commodities. The CFTC regulates futures contracts on securities jointly with the SEC. It does not regulate any trading of securities that does not involve futures contracts. That is the job of the SEC. The fact that people trade stocks with futures has never hampered the SEC's efforts to regulate them.
Curious: is "bitcoin" being used by the SEC as a general term to mean "all cryptos that fundamentally employ a work-based consensus algorithm", or "pure" cryptos or whatever? Or is it not yet clear to the SEC that there are more instances of Nakamoto consensus networks out there and not everything other than BTC is a security?
I agree that staked projects and derivative projects are securities since they are fundamentally a representation of or proxy for the actual thing of value, BTC, XCH, formerly ETH, etc.
Commodities have real-world uses (e.g. gold, oil, frozen orange juice), securities represent a claim on some productive enterprise. Cryptocurrency is neither.
That could change in a second if another agency like the SEC decides it's something else. There is nothing to say that two agencies couldn't hold conflicting positions over what BTC is or isn't.
Binance was up for “money laundering and tax offenses” issues because they deal with large sums of fiat money independent from what’s being sold. Replace Bitcoin with physical artwork and you can still run into issues here.
Coinbase similarly ran into issues not because they were selling crypto but from related activities which fall under SEC regulations. It’s one thing to operate an auction selling pigs or crypto, but when you start getting into ‘related activities’ they don’t necessarily fall under the same umbrella. Read up on “Pork Bellies” and you might start to understand the issues.
This is a slightly incorrect interpretation. Not all financial instruments are securities. Financial instruments are legal contracts between an issuer and one or more holders + other parties. If you own any stock in a company, you don’t own part of that company… what you own is a portion of a legal contract that defines what rights you have as a shareholder and what obligations the issuer has.
Currency isn’t a commodity. It’s treated as a commodity because they shares characteristics - you can buy and sell them over FX market. It’s a bit of an oddity because its value isn’t solely based on supply and demand, but stability and existence of a central authority controlling its supply.
(Opinion) Bitcoin, on the other hand, is a virtual Commodity. It is not recognized as a currency. Similarly, gold is a commodity but not a currency, though it does have a place as a non-standard currency in ISO-4217.
Commodities can be hedged against (oil futures) through derivative products. Those are formalized through a legal contract.
Your notion of a financial instrument doesn’t cover the fact that it is the legal contract involving money that makes it an instrument.
But as others have pointed out that’s not why the SEC is suing.
Seems obvious that Bitcoin shouldn't be unregulated and that there should be no question of which regulator has jurisdiction. Unfortunately that probably needs Congress to act.
Gold is a commodity because it exists in the real world and you make it. Bitcoins aren't a commodity because a random person or entity has created it with the intention of selling it to people as a financial instrument.
You can't issue more gold. And to pre-empt your inevitable reply: the limited supply of bitcoins is not equivalent because Apple also has limited amounts of stock. Doesn't make it a commodity.
>If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like Bitcoin is no ordinary security nor a financial instrument. It is not a claim on something else, even less so than a traditional bank note. It is more like a commodity. Since when is "aluminum" a security?
It's a financial instrument. A commodity is used to make or do something. Crypto currencies are literally just money making devices. Sure they call themselves currencies, but that's not their primary purpose. They're investment vehicles. Even the limited ability to trade them for goods an services doesn't get around this fact. It's like being paid in stock. That's how they're marketed. Not as a way to buy takeout, but rather get rich.
Gold is not a currency, it is a commodity that is similar enough to a currency (meaning it can substitute as a currency). ISO 4217 includes precious metals that it explicitly states are not currencies.
Currencies do not exist outside a monetary system. If I sell you something, and accept skittles as payment, that does not make skittles a currency.
It’s kind of interesting that the “commonwealth” countries (AU/NZ/GB/CA) have different classifications of crypto (AU/NZ treat them as property, CA as securities, GB varies depending on the thing).
The SEC filings do give the rationale for why specific coins are securities though.
Hard to summarize each filing though. Worth reading because, unfortunately (?), they make a good case.
Bitcoin might be classified as a commodity, but nearly every other crypto out there, especially anything with a premine or any sort of revenue sharing, is pretty clear cut a security.
I disagree that the line between 'premine' and what happened with Bitcoin is actually all that clear.
Sure, genesis block yada yada but Satoshi (if he were alive/inclined) is still a multi-billionaire from behaviors that are pretty similar to what we call premining.
Are there any crypto tokens not backed by a state that the SEC has officially and clearly declared a currency and not a commodity?
I'm starting to feel, as a practical matter, they will never consider non-government backed crypto a currency regardless of what the rules on paper are. But maybe this has already happened and I'm ignorant, I don't follow this space closely.
There was no ICO, it has an immutable fixed supply, it's not in perpetual startup mode, and not centrally controlled operationally and can't be bought back.
Crypto is more a commodity than currencies, because unlike currency, crypto is subject to the same speculative supply and demand forces as conventional commodities.
Examples of non-physical commodities: music and apps.
Example of something that doesn’t exist at all: Carbon Offsets which are credits for negative production of GHG. Credits can be purchased on the market by companies to offset their own emissions for regulatory or other reasons.
So many of these HN conversations devolve into shit bonanzas because so many people approach this topic as if it is a "Regulation vs No Regulation" topic, instead of the more appropriate "Bad Regulation vs Good Regulation" topic, or even more appropriately the "Which agency should have jurisdiction" topic. And it is a shame, because cryptocurrency has largely outgrown the anarchocapitalist utopian's mindshare, and the people involved that actually want no regulation are an extreme minority now.
You're spot on here. The vast majority of cryptocurrencies (modulo a bunch of shittokens) are better described as foreign currencies or commodities, and they should be regulated as such. Unfortunately for the SEC, that implies that they don't have jurisdiction, and that regulatory burden lies with the CFTC. And from my handful of years as a commodities trader, I would much rather have the CFTC involved than the SEC. The SEC is too inconsistent...institutionally they act like a primadonna that is interested in making headlines more than creating effective policy. The CFTC is all business. They're not perfect, but they are damn good at their job, and they are transparent about what they do and how they work, and they don't see enforcement action as a PR move, but rather as a way to ensure functioning markets and common public interest.
The Supreme Court seems to agree. The SEC has lost 4 out of their last 5 SC cases on cryptocurrency. All indicators from those decisions are pointing in the direction of cryptocurrency being regulated as a commodity, which is pointing towards the CFTC being the ones in charge.
This case makes the news because that is how the SEC works. They won't win this case, and they will cover up that fact by doing what they always do...create more news.
Crypto companies think they don't trade securities which is clearly wrong and contradicted by their own advertising. People buy crypto without a real use for crypto because they think they can sell it for more later. Everyone under the sun knows this. It's obviously a security and failing to register should be met by SEC cases like this one.
> Crypto companies think they don't trade securities
To quote the Binance Chief "Compliance" Officer: "we are operating as a fking unlicensed securities exchange in the USA bro"
Source: Quoted in the filing yesterday where SEC sued Binance
> 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.”
There are two modalities to crypto and the law needs to treat them differently. Running a node on a crypto currency network does not generate securities. It generates commodities. We don't tax people on the FMV of gold when they dig it out of the ground. But, speculating on the price of gold by creating a virtual token/contract/etc. and selling that, well that’s obviously a security. Just because people buy gold speculatively does make it a security. So buying bitcoin or chia (no longer eth) is still buying a commodity. Anything else, yeah, seems like it passes the sniff test for a security.
Article discusses Coinbase Earn, which was a staking service providing APY yields.
Is that not an unregistered financial product? That's also the kind of financial product directly behind FTX, Voyager, Gemini, and Lunacoin / Celsius collapses.
So we have direct evidence of a particular produce (staking) that is both unregistered and dangerous. That many Americans lost money over.
If you opened an exchange and did nothing but trade bitcoin, and only bitcoin, you would be free and clear, but there is no real money in that. Coinbase argued a few years ago they were losing to competition because their competitors could do a lot of gray area stuff they couldn't to do being a US-based traded company. Getting listed on Coinbase used to be the gold standard of a trusted, respectable crypto, but they at some point decided screw it and just embraced the coming legal challenges.
Bitcoin itself might not be. Even many other currencies might not. But what other "products" they are running? Those could and probably would fall under various classifications.
If that's true, then why did the SEC approve Coinbase's IPO and not doing anything about it until years later? Even in spite of Coinbase meeting with the SEC hundreds of times and testifying before congress. This is a complete change in their stance by the SEC.
It's absolutely unclear what the SEC is doing here at all. Why is ALGO a security and ETH is not? They do the same thing. What are the implications of this lawsuit? Completely unclear. This is vague and unhelpful.
edit: Keep downvoting - the fact, with a clear example, remains.
SEC is supposed to tell them what is a security and what isn’t so they can refrain from selling them. Exchanges have been asking for clarification over and over. So far the only thing the SEC said on the subject is that BTC in not a security but nothing about the other cryptos.
In the absence of regulatory clarity Coinbase have devised their own framework to classify what tokens aren’t securities and proceeded to list them. I don’t know how you can blame them. It’s the SEC’s job to tell them what they can trade and what they can’t but they refuse to do it.
When tokenbro industry invented a very convoluted asset class they expected government to say "Oh, it's really hard to understand and classify it, that's why we won't do it at all. You guys can do whatever you want now.". But actually they said "Oh, it's really hard to understand and classify it, that's why we will have to do it the long and painful way, and you guys can wait for us or not. But if you want to operate before the decision is reached - it's on you if you break the law.".
Apparently a really convoluted business plan is not an inherent human right, if it is masking law infringement in he mean time. Who knew, right?:)
What about tokens that are used to pay the network, like Ethereum? If you want to use any chain that uses Ethereum, either as a L1 or L2, you need ETH.
I could ask the same for a lot of things, though? Time shares, collectible card games, collectibles at large, fashion at large, etc.
Not that I can or will wholly defend crypto. That just doesn't seem like a relevant complaint.
I do question the desire for everlasting permanence of the blockchain. I know we like to keep real estate deed records and such going back as far as we can, but even there we have limited utility of that. Encasing it in a technical solution that expands to cover more transactions does feel limited in usefulness. Largely ironic/funny that it makes it incredibly unsuited to criminal use.
The specific crypto tokens they are classifying as securities are: SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH,
and NEXO.
Of course they say "not limited to" to hedge their bets, but those are the ones they specifically mention. This is the exact "regulatory clarity" Coinbase has been asking for, but the SEC prefers to sit on their hands for years (while investors are "harmed") and then sue, rather than actually tell Coinbase what they think up front. Sure seems self-serving to me, rather than anything like a genuine interest in protecting investors.
Nononononononononononono we don't get to play that game. The SEC has perfectly clearly communicated for years its regulatory clarity: most crypto-currencies are obviously securities.
When Coinbase and others say "regulatory clarity", they want the answer to be some framework for how they can continue to sell crypto to everyone/anyone. But that's not the policy!
Most of these coins are some combination of ponzi schemes, vaporware, pump-and-dumps, fraud, money laundering, rug pulls, etc. The SEC's position absolutely protects investors from getting involved with that crap.
That is the policy. The SEC has said that some cryptocurrencies are OK, like Bitcoin and Ethereum. And though today they gave a list of some they don't like, there are plenty of others that they still refuse to talk about despite explicit requests. What is the point of being opaque about it? It's not protecting investors, that's for sure. Seems more like they just want to be punitive.
Hah. Protecting investors. What a bunch of croc. This was never about protecting investors. If it was they would have issues the guidance 5 years ago. This is about blowing up crypto in general by removing the on/off ramps (ie the exchanges).
Also: mandatory crypto is bad for the environment and it consumes more power than the whole country of Argentina! /s But nobody seems to care or talk about how much power crapGPT is consuming. The future they tell me
> Also: mandatory crypto is bad for the environment and it consumes more power than the whole country of Argentina! /s But nobody seems to care or talk about how much power crapGPT is consuming. The future they tell me
He's right you know: [0] [1]. Cryptocurrencies like Ethereum moved from proof-of-work to proof-of-stake, eliminating 99% of their CO2 emissions. [2] There are alternatives to PoW and they exist today.
AI (Deep Learning) on the other hand is going to continue to waste more energy, water, etc has no viable efficient alternatives in training their deep neural networks without building more data centers.
Deep learning actually provides something of value now, and the training is in service of seeing if maybe it could do better in the future. Crypto provides a way to part fools from their money, and a way to circumvent financial laws.
Yes, I get that there's "value" to circumventing sanctions and whatnot, but that's the same sort of value as making people phone you to cancel a subscription or optimizing CTR on an ad or whatever. It's not the kind of "value" that benefits society.
The reason regulators have waited years, despite the facts of the matter being legally obvious, is not wanting to be blamed for blowing up the whole ponzi house-of-cards. They've waited until enough such houses blew up on their own, that they feel "the facts have been demonstrated".
If you want to know why they didnt "blow up crypto", "five years ago", its because of you -- and this attitude.
Without it, vast swathes of online grifts that have ruined peoeple's lives wouldve been blown out the water by now.
I know their are legalities I am not an expert in on finance, but my conspiracy theorist is bubbling up given the failed crypto bank, the SEC suing Binance and Coinbase, and the US and world government move for traceable, government managed and controlled digital currencies.
I was at the first HOPE in 1994[1] at the Penn Hotel in NYC when Eric Hughes (known for the Cypherpunk Manifesto) and others gave a talk on cryptography and how it would be part of a future of privacy and security for anonymous banking etc. I was so enthused about getting rid of the middle man (a minimum of 4 or 5 entities process your latte purchase at Starbucks and take a cut as well as track you and your data trail). Government doesn't like this. "What do you have to hide?" is a tired defense of prying eyes.
Yes, there were a lot of bad fish in the pool, but the goal was and is still good in my book.
It's gotten to the point where political candidates (and politicians) have to cover their tracks when paying for things, lest they be criticized for their choices. If you ever want to run for office you'd better never use a credit card at a porn shop, McDonald's (it's unhealthy), etc. This applies to data that insurance companies harvest from as well.
I used to be one of those people that said "I have nothing to hide and the conveniences outweigh the negatives", but I'm getting more and more cynical on data dragnets as I'm growing older.
Sometimes, but I have been avoiding Starbucks unless I am 'renting' office space there. For a quick coffee the bodega, deli, or Dunkin. Some retailers have made it hard to pay cash by installing card only systems. Others have long lines for cashiers and self-checkouts sometimes only take card. It's painful to see young kids struggle with making change, because they are so used to the phone/computer figuring it all out for them.
And there we go. The promise of a form of cash outside of USA government control is terrifying to the USA government. And well, most other governments too.
It is pretty obvious that when the USA government goes after crypto exchanges, what matters is to get the exchange shut down. The actual justification for doing so is an afterthought.
I'm torn on the issue of whether dematerialized privacy-preserving cash (and yeah, I know crypto exchanges had very little to do with that) is even a good thing to begin with. To me the strongest argument for it is that the crimes that would be facilitated by that are already trivial, as long as you're rich enough. You don't need Monero when you can "sell" a Monet in exchange for services instead. It is incredibly hypocritical of governments to complain that privacy-preserving currencies enable criminals when they have done literally nothing to stop the numerous convenient ways to launder money that are accessible only to rich and powerful people.
That is putting the cart before the horse. The USA is not a libertarian government. Why did anyone think that it was a good idea to invest in products that would only survive in a libertarian government?
I think investing in crypto is purely based on greater fool theory.
Doesn't mean there aren't any legitimate uses for cryptocurrency, let alone the blockchain technology.
In this sense, why should Coinbase and a currency exchange booth in some airport be considered any different? Of course, Coinbase doesn't quite operate statelessly like that, and to me that's the issue here.
I think part of it might be that the only use case for which crypto really works is for drug dealers to safely conduct transactions.
I believe in the right to privacy, but I believe in it as an extension of a personal right to self-expression. Freedom to practice your religion, to date whomever you want, etc (provided it doesn't hurt others), sure. Freedom to hold 10^9 USD secretly so that you don't have to pay tax on it and can peddle drugs, not really.
None of those posts except the last looks like taunting the SEC to me, but rather keeping the public and their customer base in particular up to date on a live regulatory issue that may present a risk to their business. That is the type of thing the SEC requires (at least of publicly traded companies) not discourages.
If criticizing a regulatory body causes them to go after you, then that regulatory body is corrupt and should be dismantled and replaced with something else.
And given the number of cryptocurrency exchanges the SEC has been suing in the past several days, it is rather unlikely that the SEC is targeting Coinbase because of Coinbase's criticisms: had Coinbase said nothing, the SEC would still be suing Coinbase.
of course, how dare private citizens not kiss the feet of unelected government officials. I love when government institutions take retribution for being "taunted"
Curious how authoritarian hackernews is - is this just a knee jerk reaction to annoying cryptobros? Sounds like a board of police officers/retired army men right now commenting on how "that boy had it coming"
It's a long-simmering annoyance at the decline of the cryptocurrency ecosystem: from the really cool technology underlying Bitcoin, to exciting whitepapers with different solutions to hard problems on other coins, to intractable whitepapers designed to create hype for coins that do nothing, to the clear creation of exchanges as places to gamble, to the sidelining of anyone in the cryptocurrency world trying to solve any problem other than "get rich quick", to the collapse of FTX.
All through it the definition of a security has been clear, but Coinbase et al has pretended that the issue is "regulatory clarity" and not "we are operating as a fking unlicensed securities exchange in the USA bro".
Very rarely a cool use case for cryptocurrency will come up, but the marketing is now entirely "invest and make money!", which is some combination of tedious and scammy, depending on who it's coming from.
That checks out. I got out of crypto a long time ago, back around when people were creating doge based coins for a laugh, i can imagine it only got a lot worse.
Readit News
A crypto currency business however may be engaged in trading of crypto currencies which are negotiable financial instruments, and a stable coin that is a claim on a traditional currency is an example of that. A stable coin bears a direct relationship to a bank note. It is a claim on something else. It is not really an investment though, so not much of a security.
And then of course there are more creative negotiable financial instruments which are definitely securities. Options, derivatives, swaps, futures, and the like.
The Supreme Court has a broader definition of securities, that involves a promoted investment in a "common enterprise", but it is unclear that a commodity currency really is a common enterprise like a corporation is for example. It seems unlikely to me that Bitcoin as such would even meet that definition of a security. But other products offered by crypto currency exchanges might.
1. Unregistered exchange for several tokens the SEC believes are securities:
> This includes, but is not limited to, the units of each of the crypto asset securities further described below—with trading symbols SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO—(the “Crypto Asset Securities”).
2. Unregistered sale of securities related to the staking program for XTZ, ETH, ATOM, ADA, SOL. This in particular has a full, point-by-point rationale for why they are defined as securities under the Howey test (in short, you deposit money, and the terms make clear that it's Coinbase's money at that point, not your money, so definitely an investment; staking involves a common enterprise; and it's clearly advertised as making you money based on Coinbase doing stuff with your investment).
Maybe Coinbase should have listened to its own advisors on how to tailor a prospectus to not meet the Howey test definition of a security... or maybe their advisors didn't do a good job in the first place!
https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
Maybe they just hired @butlerm which definitely knows what s/he's talking about and ... well here we are :)
Another incredibly important point is the $1 million net worth and $200k income based test for becoming an "accredited investor" is racist, classist, sexist, and evil. People should have the right to invest their money how they see fit. If you want people to sign some kind of disclosure, or some kind of term sheet that makes it very clear to a retail investor what they're getting into, fine. But the law as it exists is outrageously undemocratic.
In regards to the SEC, a system that was built for 1933 is not even relevant in a world where you can spin up a million new tokens in 10 seconds and deploy to 24/7 worldwide markets in 5 minutes from anywhere.
Keeping the 1933 SEC Act in tact in 2023 is like trying to keep Prohibition going even though it's raining whiskey from the sky.
Dead Comment
Then a bunch of crypto anarchists showed up and started speculating that these coins would be worth a lot in the future because we could topple the financial hegemony by their powers combined. Okay whatever, still commodity trading.
Then we started getting all these fake Ponzi coins that are standing in for something else. That’s a security.
What is possible with e.g. BTC is that it’s easy to trade at scale. A commodity that’s easy to trade isn't a security, but if you squint it kinda looks like one. Regardless, it’s not crypto’s fault that regulators are having a hard time understanding it. That’s the regulators’ and lawmakers' problem. (So elect people into power who are your peers, and who aren't 70 years old and have no hope of anything more than a cursory understanding world from the last 20 years.)
But, of course they’re not going to stand aside while people get scammed. Only the anarchists want that. The rest of us just want crypto to be treated fairly.
Crypto proponents (like every other industry that has come before, and will come after) want zero regs.
Everything else is just hand waving.
Regulators clearly know (from these filings) exactly what’s going on.
Congress needs to pass laws to spell out exactly what falls under which new regulations.
It’s clearly possible (see: Australia, NZ, UK, EU, etc, etc)
A court might disagree. The CFTC could potentially disagree, although yesterday's agreement makes me think they may have given up on that to some extent. But I actually think it's pretty clear that any cryptocurrency project offering a reward for "staking" or similar is a security.
[1] https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
https://www.law.cornell.edu/definitions/uscode.php?width=840...
A whole lot of things that aren't commodities in common parlance are within the jurisdiction of the CFTC because they are traded with futures contracts. This includes some securities. A whole lot of things that are commodities in common parlance are not within its jurisdiction, as the CFTC only deals with futures contracts.
Orange juice concentrate is a commodity by any definition. The CFTC regulates futures contracts on orange juice concentrate. It does not regulate its production, sale, transportation, or anything else unrelated to futures contracts. That is the job of the USDA, FDA, DoT, and so forth.
Stocks are securities. As they are traded with futures contracts, they are also commodities. The CFTC regulates futures contracts on securities jointly with the SEC. It does not regulate any trading of securities that does not involve futures contracts. That is the job of the SEC. The fact that people trade stocks with futures has never hampered the SEC's efforts to regulate them.
https://www.cftc.gov/IndustryOversight/ContractsProducts/Sec...
I agree that staked projects and derivative projects are securities since they are fundamentally a representation of or proxy for the actual thing of value, BTC, XCH, formerly ETH, etc.
Commodities have real-world uses (e.g. gold, oil, frozen orange juice), securities represent a claim on some productive enterprise. Cryptocurrency is neither.
[0] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi...
"The agency instead must point to 'clear congressional authorization' for the power it claims."
Coinbase similarly ran into issues not because they were selling crypto but from related activities which fall under SEC regulations. It’s one thing to operate an auction selling pigs or crypto, but when you start getting into ‘related activities’ they don’t necessarily fall under the same umbrella. Read up on “Pork Bellies” and you might start to understand the issues.
This is a slightly incorrect interpretation. Not all financial instruments are securities. Financial instruments are legal contracts between an issuer and one or more holders + other parties. If you own any stock in a company, you don’t own part of that company… what you own is a portion of a legal contract that defines what rights you have as a shareholder and what obligations the issuer has.
Currency isn’t a commodity. It’s treated as a commodity because they shares characteristics - you can buy and sell them over FX market. It’s a bit of an oddity because its value isn’t solely based on supply and demand, but stability and existence of a central authority controlling its supply.
(Opinion) Bitcoin, on the other hand, is a virtual Commodity. It is not recognized as a currency. Similarly, gold is a commodity but not a currency, though it does have a place as a non-standard currency in ISO-4217.
Commodities can be hedged against (oil futures) through derivative products. Those are formalized through a legal contract.
Your notion of a financial instrument doesn’t cover the fact that it is the legal contract involving money that makes it an instrument.
But as others have pointed out that’s not why the SEC is suing.
Seems obvious that Bitcoin shouldn't be unregulated and that there should be no question of which regulator has jurisdiction. Unfortunately that probably needs Congress to act.
https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ether...
You can't issue more gold. And to pre-empt your inevitable reply: the limited supply of bitcoins is not equivalent because Apple also has limited amounts of stock. Doesn't make it a commodity.
It's a financial instrument. A commodity is used to make or do something. Crypto currencies are literally just money making devices. Sure they call themselves currencies, but that's not their primary purpose. They're investment vehicles. Even the limited ability to trade them for goods an services doesn't get around this fact. It's like being paid in stock. That's how they're marketed. Not as a way to buy takeout, but rather get rich.
But you don't buy "bitcoin". You buy an entry in a ledger that you are assigned "a bitcoin", so it is just a claim you trade.
While googling those terms I also found that gold is defined as a currency in the open market.
I'm pretty sure the us sec will figure it out for us
Currencies do not exist outside a monetary system. If I sell you something, and accept skittles as payment, that does not make skittles a currency.
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The SEC filings do give the rationale for why specific coins are securities though.
Hard to summarize each filing though. Worth reading because, unfortunately (?), they make a good case.
Sure, genesis block yada yada but Satoshi (if he were alive/inclined) is still a multi-billionaire from behaviors that are pretty similar to what we call premining.
They are claiming a bunch of the newer cryptos like SOL are, though.
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We never regulated Beanie Babies.
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I'm starting to feel, as a practical matter, they will never consider non-government backed crypto a currency regardless of what the rules on paper are. But maybe this has already happened and I'm ignorant, I don't follow this space closely.
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Could you explain this to me?
Are there any other examples of non-physical commodities?
Examples of non-physical commodities: music and apps.
Example of something that doesn’t exist at all: Carbon Offsets which are credits for negative production of GHG. Credits can be purchased on the market by companies to offset their own emissions for regulatory or other reasons.
You're spot on here. The vast majority of cryptocurrencies (modulo a bunch of shittokens) are better described as foreign currencies or commodities, and they should be regulated as such. Unfortunately for the SEC, that implies that they don't have jurisdiction, and that regulatory burden lies with the CFTC. And from my handful of years as a commodities trader, I would much rather have the CFTC involved than the SEC. The SEC is too inconsistent...institutionally they act like a primadonna that is interested in making headlines more than creating effective policy. The CFTC is all business. They're not perfect, but they are damn good at their job, and they are transparent about what they do and how they work, and they don't see enforcement action as a PR move, but rather as a way to ensure functioning markets and common public interest.
The Supreme Court seems to agree. The SEC has lost 4 out of their last 5 SC cases on cryptocurrency. All indicators from those decisions are pointing in the direction of cryptocurrency being regulated as a commodity, which is pointing towards the CFTC being the ones in charge.
This case makes the news because that is how the SEC works. They won't win this case, and they will cover up that fact by doing what they always do...create more news.
If crypto was limited to commodities traders we wouldn't have had nearly the number of problems we have had.
> The vast majority of cryptocurrencies (modulo a bunch of shittokens)
You can't eliminate a huge part of the sector that the exchanges are actively involved in trading.
To quote the Binance Chief "Compliance" Officer: "we are operating as a fking unlicensed securities exchange in the USA bro"
Source: Quoted in the filing yesterday where SEC sued Binance
> 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.”
https://www.sec.gov/files/litigation/complaints/2023/comp-pr...
Those boys are doomed.
Important part of the conversation that some people here seem to forget.
That's not what makes something a security -- many things fit into that template that aren't securities: collectibles, commodities, etc.
Uh, yeah, we definitely do. I have relatives who sell the oil under their property, and that absolutely is taxable income.
The IRS considers found gold to be gross income and taxes are owed on it.
Why shouldn't we? We tax people on the FMV of something valuable created out of thin air, why should gold be an exception?
Is that not an unregistered financial product? That's also the kind of financial product directly behind FTX, Voyager, Gemini, and Lunacoin / Celsius collapses.
So we have direct evidence of a particular produce (staking) that is both unregistered and dangerous. That many Americans lost money over.
They are just testing that you are not lying in your public financial declarations.
edit: Keep downvoting - the fact, with a clear example, remains.
The SEC says only BTC is a commodity:
https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
The CFTC says only BTC is a commodity:
https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ether...
People keep saying that regulation is unclear, when let's be honest, it's perfectly clear. Just not what a lot of people wanted to hear.
In the absence of regulatory clarity Coinbase have devised their own framework to classify what tokens aren’t securities and proceeded to list them. I don’t know how you can blame them. It’s the SEC’s job to tell them what they can trade and what they can’t but they refuse to do it.
Apparently a really convoluted business plan is not an inherent human right, if it is masking law infringement in he mean time. Who knew, right?:)
It still makes front page news on reddit if someone does groceries with crypto: https://old.reddit.com/r/CryptoCurrency/comments/13a9q3r/yes...
People write articles if a house gets sold with bitcoin: https://finbold.com/house-in-portugal-sold-for-3-bitcoins-in...
Spending bitcoin on "stuff" basically doesn't exist. It's a rounding error.
I think the main debate is whether they are (in the US) securities under the SEC or commodities under the CFTC.
Though there may be related products and funds that are being traded.
Not that I can or will wholly defend crypto. That just doesn't seem like a relevant complaint.
I do question the desire for everlasting permanence of the blockchain. I know we like to keep real estate deed records and such going back as far as we can, but even there we have limited utility of that. Encasing it in a technical solution that expands to cover more transactions does feel limited in usefulness. Largely ironic/funny that it makes it incredibly unsuited to criminal use.
The advantages of crypto should become pretty clear at that point.
Lucky enough VC is now going to ml
Of course they say "not limited to" to hedge their bets, but those are the ones they specifically mention. This is the exact "regulatory clarity" Coinbase has been asking for, but the SEC prefers to sit on their hands for years (while investors are "harmed") and then sue, rather than actually tell Coinbase what they think up front. Sure seems self-serving to me, rather than anything like a genuine interest in protecting investors.
When Coinbase and others say "regulatory clarity", they want the answer to be some framework for how they can continue to sell crypto to everyone/anyone. But that's not the policy!
Most of these coins are some combination of ponzi schemes, vaporware, pump-and-dumps, fraud, money laundering, rug pulls, etc. The SEC's position absolutely protects investors from getting involved with that crap.
Also: mandatory crypto is bad for the environment and it consumes more power than the whole country of Argentina! /s But nobody seems to care or talk about how much power crapGPT is consuming. The future they tell me
He's right you know: [0] [1]. Cryptocurrencies like Ethereum moved from proof-of-work to proof-of-stake, eliminating 99% of their CO2 emissions. [2] There are alternatives to PoW and they exist today.
AI (Deep Learning) on the other hand is going to continue to waste more energy, water, etc has no viable efficient alternatives in training their deep neural networks without building more data centers.
[0] https://gizmodo.com/chatgpt-ai-water-185000-gallons-training...
[1] https://www.standard.co.uk/tech/ai-chatgpt-water-usage-envir...
[2] https://consensys.net/blog/press-release/ethereum-blockchain...
Yes, I get that there's "value" to circumventing sanctions and whatnot, but that's the same sort of value as making people phone you to cancel a subscription or optimizing CTR on an ad or whatever. It's not the kind of "value" that benefits society.
The reason regulators have waited years, despite the facts of the matter being legally obvious, is not wanting to be blamed for blowing up the whole ponzi house-of-cards. They've waited until enough such houses blew up on their own, that they feel "the facts have been demonstrated".
If you want to know why they didnt "blow up crypto", "five years ago", its because of you -- and this attitude.
Without it, vast swathes of online grifts that have ruined peoeple's lives wouldve been blown out the water by now.
I was at the first HOPE in 1994[1] at the Penn Hotel in NYC when Eric Hughes (known for the Cypherpunk Manifesto) and others gave a talk on cryptography and how it would be part of a future of privacy and security for anonymous banking etc. I was so enthused about getting rid of the middle man (a minimum of 4 or 5 entities process your latte purchase at Starbucks and take a cut as well as track you and your data trail). Government doesn't like this. "What do you have to hide?" is a tired defense of prying eyes.
Yes, there were a lot of bad fish in the pool, but the goal was and is still good in my book.
[1] https://youtu.be/v5kayD5IQQU
I used to be one of those people that said "I have nothing to hide and the conveniences outweigh the negatives", but I'm getting more and more cynical on data dragnets as I'm growing older.
It is pretty obvious that when the USA government goes after crypto exchanges, what matters is to get the exchange shut down. The actual justification for doing so is an afterthought.
I'm torn on the issue of whether dematerialized privacy-preserving cash (and yeah, I know crypto exchanges had very little to do with that) is even a good thing to begin with. To me the strongest argument for it is that the crimes that would be facilitated by that are already trivial, as long as you're rich enough. You don't need Monero when you can "sell" a Monet in exchange for services instead. It is incredibly hypocritical of governments to complain that privacy-preserving currencies enable criminals when they have done literally nothing to stop the numerous convenient ways to launder money that are accessible only to rich and powerful people.
I think investing in crypto is purely based on greater fool theory.
Doesn't mean there aren't any legitimate uses for cryptocurrency, let alone the blockchain technology.
In this sense, why should Coinbase and a currency exchange booth in some airport be considered any different? Of course, Coinbase doesn't quite operate statelessly like that, and to me that's the issue here.
I believe in the right to privacy, but I believe in it as an extension of a personal right to self-expression. Freedom to practice your religion, to date whomever you want, etc (provided it doesn't hurt others), sure. Freedom to hold 10^9 USD secretly so that you don't have to pay tax on it and can peddle drugs, not really.
- https://www.coinbase.com/blog/the-sec-has-told-us-it-wants-t...
- https://www.coinbase.com/blog/coinbase-does-not-list-securit...
- https://www.coinbase.com/blog/coinbases-staking-services-are...
- https://www.coinbase.com/blog/we-asked-the-sec-for-reasonabl...
- https://www.coinbase.com/blog/coinbase-takes-another-formal-...
- https://www.coinbase.com/blog/coinbase-responds-to-the-secs-...
Better yet: https://www.coinbase.com/blog/icymi-coinbase-and-the-sec
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All through it the definition of a security has been clear, but Coinbase et al has pretended that the issue is "regulatory clarity" and not "we are operating as a fking unlicensed securities exchange in the USA bro".
Very rarely a cool use case for cryptocurrency will come up, but the marketing is now entirely "invest and make money!", which is some combination of tedious and scammy, depending on who it's coming from.