Some here have said it’s the SEC who should have a more collaborative spirit. But all of their incentives, job descriptions, and reason to exist are to _enforce laws_ not be chummy with startup executives.
The “mean” approach to securities enforcement is what we as a society need…there are far too many scams and people who run them, and those scams seem especially concentrated within the crypto world.
After the blitz of NFT’s last year, I hope the SEC is grumpy as hell.
It’s not that crypto doesn’t fit within an established legal framework…it _does_. People have been trying to find their way around securities laws forever, but most of those laws because someone got ripped off.
In the blog past Coinbase General Counsel asks for "guidance". The guidance for future "crypto entrepreneurs" is going to come from the outcomes of these enforcement actions.
CryptoExpert: "We want guidance. We want regulation."
SEC: "Your product/service is a security."
CryptoExpert: "No it's not!"
Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally.
I think NFTs are foul. But are you implying that awful collector’s items (no matter how speculative and distasteful) should be regulated as securities? What is the principle there that separates them from physical artworks?
No it doesn’t. They’ve literally told them in the past when they were creating financial products that they were securities. Their entire schtik is to say
“We called it something different so it’s not a security.”
SEC: “Yes it is.”
Coinbase: “The SEC won’t engage with us and tell us what aspects of our business is a security.”
SEC: “1) that’s not how securities law works, you’re the one that has to hire lawyers 2) we already told you you were offering a security”
Nah, the answer is all of them except Bitcoin. I think all parties to this Wells-based conversation know that and Coinbase is just posturing for the court of public opinion.
[edit] I should say, Coinbase has been preparing for this forever. They acquired a broker-dealer license years ago, back in 2018. [1]
The SEC told them already several times that their products are securities, it's just that Coinbase ignored it completely.
As for the reason why usually the SEC (although I'm no expert here) don't provide a specific definition, I suppose it's similar to regulating financial markets - especially in trading.
There are concepts like "spoofing", for which there is no exact definition provided by the regulator - for the simple reason that if they do provide it, the rational actors will push it to the limits, or try to find loopholes.
Everybody knows what they can or cannot do - it's just common sense.
Their gdax/cbpro api originally called it securities and instruments (I started using it in 2017). It eventually got renamed to "products" but yeah, this is just theater.
I can take my money and put it into a slot machine, gamble it on horses, gamble it on sports games. I can buy useless thousand dollar sneakers, I can buy pokemon cards. I can waste my money on absurdly overpriced art, give it to scammy non-profits, donate it to scammy spoiler political candidates.
In some states I can use my money to hire hookers, or buy drugs.
But if I want to buy crypto, all of a sudden that is a problem and the government needs to come in and "protect" me from it. Why is that, I wonder?
> I can take my money and put it into a slot machine, gamble it on horses, gamble it on sports games. I can buy useless thousand dollar sneakers, I can buy pokemon cards. I can waste my money on absurdly overpriced art, give it to scammy non-profits, donate it to scammy spoiler political candidates.
> In some states I can use my money to hire hookers, or buy drugs.
> But if I want to buy crypto, all of a sudden that is a problem and the government needs to come in and "protect" me from it. Why is that, I wonder?
If the casinos advertised slot machines as an investment, would you still wonder?
AFAIK horse races and slot machines are regulated, so they are required to operate within a framework. This "guarantees" that you are not investing your money on rigged horse games or on slot machines misrepresenting your odds of winning or outright lying to you.
IMHO the correct reaction to this should be to make regulation requirements accessible and manageable so that the overhead is not prohibitive to smaller entrepreneurs. No regulations will create lemon markets and lemon markets don't self correct because the people who turn in it into lemon markets can just walk away rich.
Everyone knows what they are doing when gambling etc
But nowadays crypto is being pitched as an investment to the layperson who doesn’t understand the risks and isn’t being told those risks by the exchanges. It’s those folks the SEC is trying to protect.
That and prevention of larger market issues that can arise from unregulated financial services, ie FTX
For better or worse, the US controls international banking. If we lose that, we essentially lose all of our non-military options for intervening in geopolitical situations. Keeping crypto down is sort of in the US's interest.
Gee wiz, it’s not like “rug pulls” exist. That’s definitely not a thing that would ever happen and no way would there ever need to be regulation to prevent gullible people from being scammed.
The SEC's position is that some crypto coins are securities. Gambling, hookers, political donations, and non-profit donations are all regulated.
Securities are regulated even more tightly because it's *really* easy to commit fraud and fleece people of their money by lying about investments. Capitalism works because most people trust that they can make investments without being defrauded.
With hookers, non-profit donations, political donations, drugs, overpriced art, etc., the consumer knows more or less what they're getting. Lots of crypto coins are scams, and it's reasonable for the government to regulate them
That said, as Coinbase complains, the SEC is doing a really bad job of regulating crypto securities in a usable way.
If you are Coinbase, your primary product is a sort of regulatory arbitrage -- there is legal risk associated with it, and so one of your primary expenses would be an army of lawyers to decide where on the risk-reward curve you would want to be. The army of lawyers is too expensive? Buddy, no one is forcing you to be in this business. Just because you made profits in the earlier years with little to no regulation doesn't mean that government is bound to let you keep making that profit forever. Deal with it like a grown businessperson rather than whining.
> Feb. 9, 2023 — Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges
https://www.sec.gov/news/press-release/2023-25
What's the difference between Coinbase and Kraken?
There’s a lot of discussion on what constitutes a Security so I think it’s a good idea to shine a light on this topic.
In 1946, SEC v W.J. Howey Co. (328 U.S. 293) ruled the meaning of “security” as used in the provision of § 2(1) of the Securities Act of 1933 defining “security” as :
“For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
There are three components:
1. expectation of profits
2. a common enterprise
3. depends “solely” for its success on the efforts of others.
And Coinbase's position is that none of the crypto assets it lists meet that test. For the coins Coinbase lists:
- Criteria #2 is debatable
- They don't meet criteria #3
- Or they don't meet criteria #4
Lots of coins look like commodities. They represent a digital asset, not ownership in a common enterprise or a loan.
Coinbase believes that all of the tokens they list are securities. The SEC will need to tell Coinbase specifically what it believes they are doing wrong. At the very least, if they eventually file suit they will need to make a specific accusation.
It feels like a lot of people have knee-jerk crypto=bad reactions. But read their press release - it really sounds like Coinbase is trying their best to comply with U.S. regulation, and the regulators aren't doing their jobs.
And last - For digital assets that do look like securities, the SEC provides no way to register them, and thus vaguely implies that Americans can't own digital securities. That's not their decision to make - they either have to do their job and regulate crypto securities, or get congress to ban them.
> be tied to aspects of the company's ... Coinbase Earn
"Commodity linked securities are investment instruments or securities that are linked to one or more commodity prices. Unlike commodities, which provide no income to the owner, commodity linked securities usually give some payout to holders."[1]
It's like as if it was not bad enough already, things just keep getting worse. Silvergate, First Republic, Signature, and so on.
BTC breaking $29k, which was the long-standing support, in June 2022 was the first domino to fall. After that, things just kept going downhill. Many firms, individuals had leveraged positions that were dependent on $29k support holding. When it broke, all hell broke loose. 3AC was the first to fall. Then others followed, like FTX.
From afar what appears to be going on here is that the sec did nothing for years and years then ftx blew up and sbf went to jail and within the sec there was fear that they appeared asleep at the wheel. So they oversteered and decided to drum up some complaints to look like they are taking action but in reality probably don’t fully understand the space so aren’t able to clearly articulate a case.
There's a really interesting split of opinion on this. I wonder how much that aligns with the commenters personal ownership of cryptocurrecy. If anyone's willing to share their usage with their comment, that may help explain the split.
Personally, I had about $50 on coinbase at one point. As I felt that I wasn't "getting" cryptocurrency. Once I was satisfied that it wasn't useful to me I moved almost all of it out, although I still have some "dust" which seems too small to spend.
Coinbase seems designed to look like a trading platform, they feature graphs that show historical gains (and IIRC tweak the timelines of those graphs so they are always looking like the trend is up... super scammy...). I've only purchased one thing with coinbase, mostly because I thought that was a good way to move funds out. So personally, I didn't get value and I'm not going to lose money if Coinbase/cryptocurrencies tank.
The securities question appears to boil down to three questions:
1. expectation of profits
2. a common enterprise
3. depends “solely” for its success on the efforts of others.
For #1, coinbase appears to actively hype that with their "graph goes up" design. Their "learning" tool asserts that many tokens also have utility, but that seems only aspirational. Shouldn't coinbase track which tokens they feature actually have utility, avoid listing any that don't yet have usage, and delist any tokens when it's clear they have no utility? They have the data to assess that.
For #2, I'm honestly not familiar with the term.
For #3, this seems tied up in #1. If the token has utility, then the coinbase user could "use it" and engage in the market for non-speculative reasons, which should make it go up in value. If there is no utility, then there's nothing the user can personally do to increase the value.
But all this seems like a distraction to me. Coinbase seems deceptive to me in how they promote tokens to users. It's clearly a gambling platform that is trying to sprinkle on just enough "utility" to skirt the rules. The law and guidelines will eventually get updated, I don't think coinbase is entitled to SEC clarifications faster than the SEC is ready to share them. SEC is not their personal lawyer. A company trying to skirt the law with careful positioning should understand they are operating a risky business.
There’s very little utility in web3 currently, apart from speculation on price appreciation. So in that sense much if not all of it could be securities. On the other hand you’d need to rule on a case by case basis, since future real uses cases might actually pop up. I think this is one of the SEC’s problems - they just technically can’t keep up with the number of new tokens. So instead they try to target exchanges. On the other hand a Forex trading platform isn’t a securities platform - so the case isn’t as clear cut as one would believe.
[+] [-] iambateman|3 years ago|reply
The “mean” approach to securities enforcement is what we as a society need…there are far too many scams and people who run them, and those scams seem especially concentrated within the crypto world.
After the blitz of NFT’s last year, I hope the SEC is grumpy as hell.
It’s not that crypto doesn’t fit within an established legal framework…it _does_. People have been trying to find their way around securities laws forever, but most of those laws because someone got ripped off.
[+] [-] 1vuio0pswjnm7|3 years ago|reply
CryptoExpert: "We want guidance. We want regulation."
SEC: "Your product/service is a security."
CryptoExpert: "No it's not!"
Damodoran called cryptocurrency "currency made by the paranoid for the paranoid." [paraphrase] Let's be honest, cooperating with the government is not high on the crypto nerd's list of priorities. The "cryptocurrency" concept seems to be based on a mistrust of government-issued currency and a mistrust of government more generally.
[+] [-] matthewdgreen|3 years ago|reply
[+] [-] botanical|3 years ago|reply
ASEA Brown Boveri ABB Settles SEC Charges That It Engaged in Bribery Scheme in South Africa
https://www.sec.gov/news/press-release/2022-214
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] ALittleLight|3 years ago|reply
[+] [-] hoseja|3 years ago|reply
[+] [-] tzm|3 years ago|reply
Sums up the case quite well.
[+] [-] cududa|3 years ago|reply
“We called it something different so it’s not a security.”
SEC: “Yes it is.”
Coinbase: “The SEC won’t engage with us and tell us what aspects of our business is a security.”
SEC: “1) that’s not how securities law works, you’re the one that has to hire lawyers 2) we already told you you were offering a security”
Coinbase: “We’re being persecuted!”
[+] [-] arcticbull|3 years ago|reply
[edit] I should say, Coinbase has been preparing for this forever. They acquired a broker-dealer license years ago, back in 2018. [1]
[1] https://brokercheck.finra.org/firm/summary/151143
[+] [-] TheAlchemist|3 years ago|reply
The SEC told them already several times that their products are securities, it's just that Coinbase ignored it completely.
As for the reason why usually the SEC (although I'm no expert here) don't provide a specific definition, I suppose it's similar to regulating financial markets - especially in trading.
There are concepts like "spoofing", for which there is no exact definition provided by the regulator - for the simple reason that if they do provide it, the rational actors will push it to the limits, or try to find loopholes.
Everybody knows what they can or cannot do - it's just common sense.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] kristopolous|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] entelechy0|3 years ago|reply
[deleted]
[+] [-] thepasswordis|3 years ago|reply
In some states I can use my money to hire hookers, or buy drugs.
But if I want to buy crypto, all of a sudden that is a problem and the government needs to come in and "protect" me from it. Why is that, I wonder?
[+] [-] lelanthran|3 years ago|reply
> In some states I can use my money to hire hookers, or buy drugs.
> But if I want to buy crypto, all of a sudden that is a problem and the government needs to come in and "protect" me from it. Why is that, I wonder?
If the casinos advertised slot machines as an investment, would you still wonder?
[+] [-] mrtksn|3 years ago|reply
IMHO the correct reaction to this should be to make regulation requirements accessible and manageable so that the overhead is not prohibitive to smaller entrepreneurs. No regulations will create lemon markets and lemon markets don't self correct because the people who turn in it into lemon markets can just walk away rich.
[+] [-] lottin|3 years ago|reply
[+] [-] keyanp|3 years ago|reply
But nowadays crypto is being pitched as an investment to the layperson who doesn’t understand the risks and isn’t being told those risks by the exchanges. It’s those folks the SEC is trying to protect.
That and prevention of larger market issues that can arise from unregulated financial services, ie FTX
[+] [-] ajhurliman|3 years ago|reply
[+] [-] jimbob45|3 years ago|reply
[+] [-] aardvarkr|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] libraryatnight|3 years ago|reply
[+] [-] throw1234651234|3 years ago|reply
[+] [-] skywhopper|3 years ago|reply
[+] [-] MagicMoonlight|3 years ago|reply
[+] [-] joefigura|3 years ago|reply
Securities are regulated even more tightly because it's *really* easy to commit fraud and fleece people of their money by lying about investments. Capitalism works because most people trust that they can make investments without being defrauded.
With hookers, non-profit donations, political donations, drugs, overpriced art, etc., the consumer knows more or less what they're getting. Lots of crypto coins are scams, and it's reasonable for the government to regulate them
That said, as Coinbase complains, the SEC is doing a really bad job of regulating crypto securities in a usable way.
[+] [-] miohtama|3 years ago|reply
Here are comments from the Coinbase legal https://mobile.twitter.com/iampaulgrewal/status/163866003232...
Here is some commentary on Bloomberg https://archive.ph/tXiOm
Here are some earlier comments from Mr Gensler: “Come in and talk to us” https://cointelegraph.com/news/sec-chair-doubles-down-tells-...
[+] [-] est31|3 years ago|reply
[+] [-] 3np|3 years ago|reply
[+] [-] polygamous_bat|3 years ago|reply
[+] [-] latchkey|3 years ago|reply
https://www.coindesk.com/business/2023/02/23/cathie-woods-ar...
and then yesterday... so convenient...
https://www.businessinsider.in/stock-market/news/cathie-wood...
Down 8.16% today...
https://finance.yahoo.com/quote/COIN/
[+] [-] vyrotek|3 years ago|reply
"Cathie Wood of ARKK sold 160,887 shares of Coinbase, COIN, today."
https://twitter.com/unusual_whales/status/163833492762331136...
[+] [-] pazimzadeh|3 years ago|reply
What's the difference between Coinbase and Kraken?
[+] [-] josh2600|3 years ago|reply
Most companies in crypto want to be regulated but haven’t been able to reach a shared plateau of understanding with the SEC.
One way or another, we’re going to end up with regulation soon.
[+] [-] aardvarkr|3 years ago|reply
In 1946, SEC v W.J. Howey Co. (328 U.S. 293) ruled the meaning of “security” as used in the provision of § 2(1) of the Securities Act of 1933 defining “security” as : “For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
There are three components:
1. expectation of profits
2. a common enterprise
3. depends “solely” for its success on the efforts of others.
[+] [-] joefigura|3 years ago|reply
Coinbase believes that all of the tokens they list are securities. The SEC will need to tell Coinbase specifically what it believes they are doing wrong. At the very least, if they eventually file suit they will need to make a specific accusation.
It feels like a lot of people have knee-jerk crypto=bad reactions. But read their press release - it really sounds like Coinbase is trying their best to comply with U.S. regulation, and the regulators aren't doing their jobs.
And last - For digital assets that do look like securities, the SEC provides no way to register them, and thus vaguely implies that Americans can't own digital securities. That's not their decision to make - they either have to do their job and regulate crypto securities, or get congress to ban them.
[+] [-] dgrin91|3 years ago|reply
[+] [-] brrrrrm|3 years ago|reply
"Commodity linked securities are investment instruments or securities that are linked to one or more commodity prices. Unlike commodities, which provide no income to the owner, commodity linked securities usually give some payout to holders."[1]
[1] https://corporatefinanceinstitute.com/resources/commodities/...
[+] [-] TheAlchemist|3 years ago|reply
Coinbase answer ? "Coinbase does not list securities. End of story"
Here is their own answer from a year ago: https://www.coinbase.com/blog/coinbase-does-not-list-securit...
They can cry all their want - it's all PR trying to get public support. Kind of like VCs did with SVB deposits insurance..
[+] [-] TimJRobinson|3 years ago|reply
HN Thread: https://news.ycombinator.com/item?id=35269659
[+] [-] dang|3 years ago|reply
We asked the SEC for reasonable crypto rules for Americans - https://news.ycombinator.com/item?id=35269659
[+] [-] paulpauper|3 years ago|reply
It's like as if it was not bad enough already, things just keep getting worse. Silvergate, First Republic, Signature, and so on.
BTC breaking $29k, which was the long-standing support, in June 2022 was the first domino to fall. After that, things just kept going downhill. Many firms, individuals had leveraged positions that were dependent on $29k support holding. When it broke, all hell broke loose. 3AC was the first to fall. Then others followed, like FTX.
[+] [-] dkrich|3 years ago|reply
[+] [-] djbusby|3 years ago|reply
[+] [-] not_enoch_wise|3 years ago|reply
[+] [-] 8organicbits|3 years ago|reply
Personally, I had about $50 on coinbase at one point. As I felt that I wasn't "getting" cryptocurrency. Once I was satisfied that it wasn't useful to me I moved almost all of it out, although I still have some "dust" which seems too small to spend.
Coinbase seems designed to look like a trading platform, they feature graphs that show historical gains (and IIRC tweak the timelines of those graphs so they are always looking like the trend is up... super scammy...). I've only purchased one thing with coinbase, mostly because I thought that was a good way to move funds out. So personally, I didn't get value and I'm not going to lose money if Coinbase/cryptocurrencies tank.
The securities question appears to boil down to three questions:
1. expectation of profits
2. a common enterprise
3. depends “solely” for its success on the efforts of others.
For #1, coinbase appears to actively hype that with their "graph goes up" design. Their "learning" tool asserts that many tokens also have utility, but that seems only aspirational. Shouldn't coinbase track which tokens they feature actually have utility, avoid listing any that don't yet have usage, and delist any tokens when it's clear they have no utility? They have the data to assess that.
For #2, I'm honestly not familiar with the term.
For #3, this seems tied up in #1. If the token has utility, then the coinbase user could "use it" and engage in the market for non-speculative reasons, which should make it go up in value. If there is no utility, then there's nothing the user can personally do to increase the value.
But all this seems like a distraction to me. Coinbase seems deceptive to me in how they promote tokens to users. It's clearly a gambling platform that is trying to sprinkle on just enough "utility" to skirt the rules. The law and guidelines will eventually get updated, I don't think coinbase is entitled to SEC clarifications faster than the SEC is ready to share them. SEC is not their personal lawyer. A company trying to skirt the law with careful positioning should understand they are operating a risky business.
[+] [-] dsco|3 years ago|reply