[nirushiv]

I don’t think the “crypto isn’t a security” argument is going very far. The SEC has a very loose definition of a security - vaguely, something you buy with the expectation to make money from it appreciating - that is meant to capture unforeseen cases exactly like crypto.

A single quote from someone isn’t changing years and millions of pieces of evidence of people using and promoting crypto almost entirely as a security by this definition.

[brasic]

It’s not the SEC’s definition, it’s the supreme court’s:

If:

  - It is an investment of money
  - There is an expectation of profits from the investment
  - The investment of money is in a common enterprise
  - Any profit comes from the efforts of a promoter or third party

Then it’s a security.

https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.

[joefigura]

Coinbase claims 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. CFTC officials have said as much, as Coinbase quoted: "the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil…or crypto assets." - Then-CFTC Commissioner Quintenz

Coinbase believes that all of the tokens they list are securities. The SEC needs to tell Coinbase specifically what it believes they are doing wrong - it will have to eventually, if it files suit.

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.

Edit: arcticbull pointed out that many digital assets do seem like securities (ICOs). Updated this comment with Coinbase's claim that they don't list any tokens that resemble securities

[arcticbull]

Sure they do. Explanation here. [1]

> Crypto folks: We want regulatory clarity.

> SEC: Check out 'Framework for “Investment Contract” Analysis of Digital Assets' [1]

> Crypto folks: NOT LIKE THAT.

The regulators have been super clear, the crypto folks just don't like what they're seeing. They saw people who didn't ask make money, and people who did ask get shut down. So they didn't ask. But the noble ostrich is only able to keep their head in the sand for so long.

[1] https://www.sec.gov/corpfin/framework-investment-contract-an...

[joefigura]

That guidance is about ICOs that are investment contracts. Lots of tokens appear to meet the definition of an investment contract, but not everything called an ICO is an investment contract. The whole point of that guidance is to help people issuing an ICO to determine what's an investment contract.

But Coinbase doesn't host any ICOs, and they reject ICO tokens that look like securities! Here is Coinbase's guidance to its users on that point:

https://help.coinbase.com/en/coinbase/getting-started/crypto...

They say as much in their press release, if anyone would read it:

"Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange... This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance and information security aspects of the asset. 90%+ of assets that we review are not ultimately listed on Coinbase because they do not meet these standards."

Coinbase says they don't list digital assets that could be considered securities! Everyone's hand-waving that Coinbase has obviously done something wrong, but no-one can point out specifically what. There's a disagreement on fact here - either the SEC tells Coinbase what it's doing wrong, and they can comply, or they don't and it gets settled by a court.

Edit: Updated the comment since articbull rightly pointed out that Coinbase does list some tokens that were originally issued in ICOs.

[arcticbull]

> But Coinbase doesn't host any ICOs! And they reject ICO tokens!

Sorting Coinbase token pairs alphabetically I only had to get as far as AAVE.

> The firm, originally named ETHLend, raised $16.2 million in an initial coin offering (ICO) in 2017, during which time it sold 1 billion units of its AAVE cryptocurrency - originally named LEND. [1]

Coinbase doesn't publish their standards or approaches, and frankly, it's very much in their interests not to declare something a security. I suspect their process is less than rigorous.

> Coinbase doesn't list digital assets that could be considered securities! Someone needs to actually point to what they're doing wrong.

I believe I linked to the document above :) maybe their lawyers would like to give 'er a skim?

[1] https://www.kraken.com/learn/what-is-aave-lend

[joefigura]

Coinbase's position is that that ICO was not an investment contract. Not everything called an ICO is an invetment contract - the point of that SEC page is to provide guidance on when an ICO is an investment contract. Coinbase's lawyers have certainly given that document a skim, they reference it here where they talk about securities law:

https://help.coinbase.com/en/coinbase/privacy-and-security/o...

There is a disagreement of fact - Coinbase says they don't list any securities, and the SEC claims they do and are violating securities law, without providing any specifics. Assuming the SEC goes forward, a court will have to decide.

[ryan_lane]

> Criteria #2 is debatable

They don't call themselves a gambling site.

> They don't meet criteria #3

"an enterprise in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those offering or selling the investment or of third parties."

Every coin meets #3, because without exchanges, you can't make profit.

> Or they don't meet criteria #4

Coins are speculative in nature. Without promotion, you can't find new investors. If you don't have new investors, the price can't go up.

[GoblinSlayer]

Cryptocurrency is money, you can send them no questions asked, without begging fiat gatekeepers to let the transaction through mining the hell out of your personal information, your clothes, your boots and your motorcycle.

[ryan_lane]

> without begging fiat gatekeepers

To purchase the coins you need to use an exchange. To sell the coins you need an exchange. Cryptocurrency isn't usable without fiat, and it's value is based on fiat.

Unless you're using very specific coins (which aren't allowed on most exchanges), your transaction history is public to the world, which is worse from a privacy perspective than fiat. If you really used coins as your primary currency, it would be pretty trivial to obtain your identity from your transaction history.

[GoblinSlayer]

>Cryptocurrency isn't usable without fiat

You mean it's not convertible to fiat when fiat fails? That's what I mean too: fiat fails.

[ProjectArcturis]

This isn't about coins, it's about staking.

[GoblinSlayer]

It's about coins having no use except for staking.

[tarunupaday]

So, I am not saying the crypto community (or Coinbase) is right or wrong here. But it's not as clear-cut as OP makes it out.

While Howey's test is well-known, each crypto asset can be argued to pass or fail for different reasons:

1. The biggest issue is what constitutes a "common enterprise"? Most federal courts (but not all) have defined it as a horizontal structure where assets are pooled. (https://core.ac.uk/download/pdf/159597203.pdf) Coinbase can argue that a straight purchase of a crypto token has no "common enterprise" because there is no pooling of assets.

2. It's not trivial to prove that profit for a given crypto token comes from the "efforts of the promoter or third party." Who even is the promoter of a distributed token? What identifiable third party's efforts is the profit in the crypto sale even dependent on?

3. Finally, is there always an expectation of profit? How is buying a vanity NFT different from purchasing a vanity domain that I do not use? What about a vanity NFT avatar I want to show off on Twitter / Reddit / Telegram?

It's a complex case with lots of nuances. Whichever way courts rule - it will set new precedents.

What we have here is different from the allegations that the SEC has made against other crypto entities, which were mostly about mixing consumers' assets, insider trading, improper disclosures during promotions or even straight-up money laundering.

Those cases were not going to set new case law. This case will.

[djbusby]

Crypto is a group buying and selling fractional ownership of the "diamond ring" - or rather - this perspective could pass Howey (NAL)

[SAI_Peregrinus]

Staking is a pooling of assets. A coin is a commodity, a stake in a currency is a security. An iPhone is a commodity, a stake in Apple (shares of their stock, corporate bonds, etc.) is a security.

[pa7x1]

I think you forgot a prong in the Howey test. "With the expectation of profit from the effort of others."

There are various forms of staking, if it requires running your own validator the expectation of profit is derived from your own effort. Therefore not a security.

[SAI_Peregrinus]

Coinbase's staking service is Coinbase running the validator for you, and giving you a share of any profits.

[pa7x1]

Yes, but the statement you make above is in general for staking. Not staking as offered by Coinbase. My comment above clarifies that the specific details of how the staking is implemented matter, at least with respect to Security's law.

My non-lawyer interpretation is that, indeed, centralized staking offerings like Coinbase seem to fit the Howey test criteria and are at risk of being deemed a security offering. But not all staking is.

[petesergeant]

Not disputing this, but does that mean buying forex is a security, and if not, what stops it being?

My guess is that foreign governments aren’t counted as 3rd parties / promoters?

[darksaints]

There is a broad array of explicit exemptions from the Securities Act of 1932. Municipal bonds, for example, are not regulated by the SEC because they are explicitly exempted.

Interest bearing bank acceptances or commercial paper with maturities less than 180 days or 270 days respectively are also explicitly exempt. Since coinbase’s offering has no maturity date, and money can be withdrawn at will, my guess is that they are trying to argue that this is an exempt security. TBF, I don’t see much difference between this and a foreign-denominated interest bearing bank account.

There’s a lot of crypto==bad posting going on, and I generally agree with the crypto==bad crowd, but this is hardly a clear matter and likely needs to be taken to court to resolve. The SEC has a long history of turf wars with other regulatory agencies and regulatory overreach beyond their congressional authorization. They have lost 4 out of their last 5 Supreme Court cases related to cryptocurrency. I wouldn’t be surprised if their refusal to clarify is because they know they wouldn’t prevail in court and are trying to get away with setting precedent in the court of public opinion. It certainly looks like it’s working, judging by the opinions in this thread.

[pa7x1]

Current SEC's position seems to be mostly political posturing by Gary Gensler, and not necessarily based on technical or regulatory merits. There is strong dissent within the SEC with its most recent actions. Most notably by Hester Peirce, one of the 5 SEC commissioners. Something smells afoul at the top of the SEC.

You can watch a very interesting recent interview with her here: https://www.youtube.com/watch?v=kvsJM0regpw

Or read some of her recent dissents: https://www.sec.gov/news/statement/peirce-statement-kraken-0...

[fnordpiglet]

Forex is not a security because it’s not an investment in an enterprise but an exchange of like for like of legal tender. Otherwise the money changers at airports would be regulated by the SEC and they would have to register their currency exchange, and any international transaction would have to be disclosed and regulated by the sec in literally every single case. Plus the SEC has no authority either of the treasury of the US nor any other governments treasury.

[cdiddy2]

so having another country declare a crypto as legal tender makes it no longer a security in the US?

[lxgr]

A currency being legal tender presumably has little bearing on whether the U.S. would consider it a currency. Some countries don‘t even have the concept of legal tender, while others recognize currencies they don’t issue themselves.

Being issued by a sovereign state would probably be a better test.

[kyboren]

> Being issued by a sovereign state would probably be a better test.

Aha, so they just need another layer of indirection.

Acting on the imprimatur of the country's central bank, programmatically issue a sovereign CBDC upon the deposit of BTC. Keep cryptographic proof of 100% BTC reserves at all times to provide ultimate credibility for your (potentially parallel) currency (so you can keep using dollars or pesos or whatever in your real economy). Allow intra-CBDC transfers for 0.1% fee and programmatic redemptions for BTC for 0.2%. Profit.

`ping -i1 www.bcr.gob.sv`...

[Xorakios]

The economic definition of "legal tender" is sometimes obscured in casual conversation.

It isn't "issued by a sovereign state" - that's "fiat" but rather "used for paying taxes." And sometimes, like in the US, debts ("all debts foreign and domestic").

Certainly it has to vary among countries of which I am ignorant, but generally in the Anglosphere it is debts, not payments, that trigger the definition of "legal tender."

[klodolph]

Feels like the answer to these questions is just gonna be “maybe such a case in the future will make it to the courts, and the courts will have to come up with an interpretation here.” We can make guesses about what the courts will decide but how confident are we in our guesses?

[cdiddy2]

its already the case with el salvador and bitcoin. bitcoin wasn't really under question though for being a security so would need someone to make a smaller token legal tender

[fsckboy]

an argument like that couldn't hurt, but if North Korea declared Apple stock to be legal tender, it wouldn't make Apple stock not a security.

[dragonwriter]

> Not disputing this, but does that mean buying forex is a security, and if not, what stops it being?.

I’m not sure the rationale (or if it is just an explicit designation), but forex (and some related derivatives) is commodity trading regulated by the CFTC rather than security trading regulated by the SEC. (I think a regulatory problem with cryptocurrency is that it is generally clearly one or the other, but not always clear which, and while the market would like crypto to be one category it is probably a messy split between the two, absent legislation defining it and assigning it as a category.)

[TylerE]

Seems like a fairly clear line can be drawn unambiguously.

If it’s, like Bitcoin, just a number in a ledger, it’s a commodity.

As soon as you attach any specific data to it, like a smart contract or tieing it to a single, tangible object like a painting, or paying rewards to people who bought before a specified time, it’s no longer fungible. It isn’t a commodity.

[pa7x1]

Confidently wrong. Par for the course in HN.

[TylerE]

Such a detailed rebuttal.

[michael_vo]

If you just exchange usd for euro that’s not an expectation of profit per se. And no one is taxed for this action.

If you’re a day trader of forex usually at the end of the day you would settle back into your default currency. Your gains from this is taxed. But usually when doing this you’re buying derivative products that are explicitly securities with maturity dates.

[lrvick]

If you are buying euros as a hedge against USD inflation then you are expecting a potential of profit, or at least lowering losses.

Same with precious metals, or Bitcoin.

[michael_vo]

I agree if it’s part of your investment portfolio. The profit part comes when you cash it back into your default currency in order to use it or to realize the gains.

If you bought btc, used it to buy goods, and never cashed it back to usd then I think it is a currency.

[charcircuit]

You realize gains when you use another currency to buy something. So if you exchange USD for Euro and then the price of Euro goes up by 5% then when you buy a sandwhich with that money you have to pay taxes on 5% of the price of that sandwhich. Unless you convert your USD to Euro at the time of the transaction buying things with euro can turn into a tax nightmare since you have to keep track of the exact time you purchase something to know the exact exchange rate.

If this wasn't the case you could just avoid capital gains by buying something with eulos and reselling it for usd with no profit.

[Xorakios]

That is not accurate. If a US citizen buys, for example, an extra $1000 in euros that are not spent, and the exchange rate changes, it is a taxable event.

The specific line item is on Form 8949, to report gains from foreign currency exchange transactions, Part I and it absolutely applies to vacation travelers, not just FOREX investors.

[yawnr]

So — housing?

[bfung]

> There is an expectation of profits from the investment

Not everyone cares to 1) sell their house 2) at a profit. Some people just want to live in it and even die in it.

[yawnr]

But their kids probably will. Is a generational investment not a security? I’m not even trying to be cute. Everyone is competing with corporations for single family housing for a reason now.

[EVa5I7bHFq9mnYK]

Not everyone cares to 1) sell their Bitcoin 2) at a profit. Some people just want to live long enough until there are no other forms of money left.

[rafram]

Housing isn’t an investment in a common enterprise.

[simple-thoughts]

False. If your local governing agency (whether private or public) fails to maintain the local parks, schools, and roads, the value of your house will fall. Houses are securities according to the Howey test.

[Godel_unicode]

No they aren’t.

“The respondent companies are offering something more than fee simple interests in land…they are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise.”

https://recaldelaw.com/do-security-regulations-cover-real-es...

[simple-thoughts]

Yes, the courts don’t support the SEC interpretation of the Howey test, and the SEC has repeatedly lost in court. Your point is?

[p0pcult]

My HOA would argue otherwise. It exists specifically to prevent housing prices from falling due to certain local factors.

[agency]

- Any profit comes from the efforts of a promoter or third party

[autoexec]

Couldn't that apply to just about anything the moment anyone anywhere says "Buying X is a good investment!" so long as it's possible that the promotion resulted in X selling at a higher price?

[yawnr]

A broker?

[ghouse]

If a Real Estate Investment Truest (REIT), then yes.

[hbbio]

That doesn't mean securities must be never traded ever, especially given your broad definition.

Problem is Coinbase wants to be regulated, but the regulators are *not accepting* any regulated venue nor even willing to open discussions. Quite a strange attitude.

"We believe a large number of crypto securities also exist, and should be available to register and trade on SEC registered brokerages and exchanges, a point we've made repeatedly in our discussions. 9/15"

https://twitter.com/iampaulgrewal/status/1638660032324829184

[polygamous_bat]

SEC is an enforcement agency, their job is not to be buddies with startups to figure out what is crime and what is not. Coinbase can hire lawyers for that until they are certain they can defend themselves in court. We live in a rule of law, after all.

It's like the cartel asking "clear guidance" from the DEA about what exactly is and is not an illegal drug that can be pushed on the street, and then complaining that they won't sit at the table and discuss the legality of fentanyl. If you want to be in this business, lawyers should be your _primary_ expense, and make sure you hire enough to be confident that you can defend your practices.

[Plasmoid]

Just no.

Rules and laws aren't supposed to be a puzzle you argue about via $1000/hr lawyers. They're meant to be a framework to achieve policy goals. It is 100% reasonable to ask the other side what their opinions on things are.

If they don't reach out to the regulators then people complain that tech is just trying to skirt the rules again.

[polygamous_bat]

> Rules and laws aren't supposed to be a puzzle you argue about via $1000/hr lawyers.

Laws are living things that must always be up for interpretation. This is the sole reason we have courts instead of two parties writing their arguments out into a formal language and feeding them into a theorem prover to see who is right.

And good news, most of the cases they are not! NASDAQ is a public company, you can find out how much they spend every quarter on lawyers. I can tell you that their legal expenses would be smaller than Coinbase's.

Why? Because Coinbase _chose_ to operate in a place where the legal grounds were not quite clear. They profited from the lack of regularity clarity in their early years. Now that the regulations are solidifying in directions that they don't like, they're shedding crocodile tears because, guess what, doing shady business is getting more legally expensive than it is profitable for them. Thankfully, laws are not written solely to maximize profits for private corporations, or protect the profits that they made during times of unclear regulations.

[TimJRobinson]

What is the USA trying to achieve though? If you want innovation to continue in the USA you can't expect companies to wait decades until the government has decided what is allowed and what isn't, they're just going to setup in other countries instead.

The USA was founded on freedom and the ability for people to innovate and create, now it's becoming a place many companies avoid because of a hostile government and this is going to be disasterous for the future wealth of the country.

Coinbase points out in the post that it's been much easier to operate in every other country than the USA.

[polygamous_bat]

> If you want innovation to continue in the USA you can't expect companies to wait decades until the government has decided what is allowed and what isn't, they're just going to setup in other countries instead.

Innovation like South Korea's Terra Luna, Bahama's FTX, and (region unspecified)'s Binance? What would the US do without such "innovation", the horrors!

> The USA was founded on freedom and the ability for people to innovate and create.

Including creative legal solutions that circumvent laws, I assume? I have been involved in an early crypto project in the past, and the way the "token"s are created is by first making them as digital securities, and then adding enough "utility" to give it plausible deniability under the Ethereum defense (something with enough utility may not be a security.) This process generally takes multiple rounds of back-and-forth between the "devs" and the lawyers. However, these tokens act like securities, people buy them as if they're securities, and they are dumped on the market by early investors and devs like they are securities. Unfortunately, it's not fooling people anymore, and SEC can actually take steps on it.

> Coinbase points out in the post that it's been much easier to operate in every other country than the USA.

"Much easier to dump fake securities on the public elsewhere" is probably a feature of the USA and not a bug. I'm glad it is the case.

[worrycue]

> you can't expect companies to wait decades until the government has decided what is allowed and what isn't

I think if it’s not outlawed then it’s allowed. In this case, they should probably hire lawyers to work out if what they are doing is outlawed and listen to their counsel’s advice … or don’t.

> Coinbase points out in the post that it's been much easier to operate in every other country than the USA.

They are free to leave.

[coldtea]

>It's like the cartel asking "clear guidance" from the DEA about what exactly is and is not an illegal drug that can be pushed on the street, and then complaining that they won't sit at the table and discuss the legality of fentanyl.

Fentanyl is clearly illegal to sell in the street, and this information is available and codified into law. So this is a bad example to use to argue that Coinbase don't have a point.

DEA and the law in general should (and indeed does) provide clear guidance as to what substances are illegal and which are not, and even whether a particular novel substance is legal or not.

[polygamous_bat]

> Fentanyl is clearly illegal to sell in the street, and this information is available and codified into law.

Fentanyl was invented sometimes around the 1960s, and cocaine at some point was prescribed liberally by doctors. Lot of new inventions are immediately not "clearly legal or illegal" from the get go. And from where I stand (and very likely, SEC stands), it is also quite clear that unregistered token sales should be illegal. If Coinbase wants to build a business on top of it, they better have lawyers ready to argue why it should be legal. Or, they can wait until there is clear laws and regulations, which necessarily evolves slower than start-ups.

Coinbase can't profit from regulatory arbitrage and then turn around and complain that there are no clear regulations. If there were, Coinbase would have much thinner margins because there would be many more exchanges doing exactly what they do but better. What is happening right now is Coinbase mistaking themselves for an "innovative tech" company when they were primarily an "innovative legal interpretation" company, and crying about the government when they got caught with their pants down.

[throwawaymaths]

I'm not sure that is the analogy you want -- You do understand Fentanyl is a legal drug with legitimate uses? If Coinbase claims to want to be a doctor, then by your analogy the DEA is deliberately being unclear to trap doctors. Which, lol, is something that the DEA is known to have done.

In the US there should be an expectation that if a regulatory agency is going to regulate it must have clear and unambiguous rules, and have enforcement policy documented and reviewed. Anything short of that is just a recipe for abuse.

To be clear, all sorts of regulatory agencies do tons of shenanigans, and this is low on the list. But still. We can do better.

[polygamous_bat]

> If Coinbase claims to want to be a doctor, then by your analogy the DEA is deliberately being unclear to trap doctors. Which, lol, is something that the DEA is known to have done.

No, SEC is telling Coinbase to register the securities (aka tokens that walk like securities and quack like securities) that they are offering. Just like it's legal to sell fentanyl with proper medical and pharmaceutical licenses, it is also legal to register your tokens as security and follow all the security sales regulations. However, Coinbase doesn't like that because it cuts into their profit margins, just like the cartel doesn't like registering as a medical organization because it will limit their profits.

[crystaln]

Not true. The SEC is regulatory agency and they are in fact in charge of providing regulations and guidance.

https://www.sec.gov/investment/im-guidance-updates

[jdminhbg]

> Coinbase can hire lawyers for that until they are certain they can defend themselves in court.

This is exactly what they’re doing. You think they just fired off some press releases in response like some kinda half-informed HN comment?

[JeremyBanks]

Yes, that’s clearly been their entire business MO from day one.

[digitaltrees]

I think your analogy is interesting but doesn’t the government list a scheduled of specific drugs and their classification? So applying your analogy would mean the SEC would list specific crypto on a schedule based on what type of security/commodity/exempt asset schedule they are governed by.

I also think government should work to promote certainty and treat good faith efforts from citizens and companies to get clarity with mutual good faith.

[polygamous_bat]

> I think your analogy is interesting but doesn’t the government list a scheduled of specific drugs and their classification? So applying your analogy would mean the SEC would list specific crypto on a schedule based on what type of security/commodity/exempt asset schedule they are governed by.

Yes, because all drugs that can be sold to the public have to apply for FDA approval first, and wait until their entire procedure is vetted. If you think cryptobros are willing to sit there and wait for SEC approval on their tokens that they pump and dump on the public we must be living in two different worlds.

[fnordpiglet]

The SEC is both a rule making and an enforcement agency. They are also a wee bit dysfunctional of late.

[codehalo]

That's because they should not be regulating cryptocurrencies, and neither should the CTFC. It's a new asset class with very dynamic properties. Wouldn't it be better for congress to just create a new agency to handle it?

[woodruffw]

Every time you derive a financial instrument, you produce a new asset class. That doesn't make the instrument or its derivative not a security; the definition of "security" impinges regardless.

[fnordpiglet]

There are a lot of dynamic securities and instruments out there. The dynamism isn’t a property considered. In fact the complexity of an instrument makes it get especially close scrutiny. But the primary thing that’s driving scrutiny is scale of public impact. It’s hard to say crypto is a fringe asset class, or that the public isn’t harmed by lack of regulatory frameworks. You can’t look at FTX, or the other stories of millions of people being soaked by con artists and poorly managed controls. The more crypto becomes a public commodity, or the effects of crypto trading impacts the public indirectly through systemic instability, the more strident the regulatory actions will become. Frankly the market participants created the situation through their flagrant inability to keep their hands in their own pockets.

[danaris]

So, what do you expect to happen? Cryptocurrency companies should just be allowed to run around doing whatever the hell they like until Congress, which is clearly dysfunctional ever since the Republican Party made it their mission to prevent the Democratic Party from doing anything ever again, manages to get some kind of regulation out? And how long do you expect that to take?

The only real alternative seems to be "no one is allowed to do anything with cryptocurrency until there are clear regulations around it."

I know which one of these I would prefer, given only these choices, and it's definitely not the one that enables massive fraud and grifting.

[p0pcult]

What do you expect to happen, the local Sheriff gets to enforce whatever "laws" s/he can make up, so long as they aren't explicitly approved activities?

[bpodgursky]

> If you want to be in this business, lawyers should be your _primary_ expense, and make sure you hire enough to be confident that you can defend your practices.

If you can say something like this with a straight face, you're just a bad person.

[fallingknife]

An enforcement agency should make the rules it enforces very clear. The DEA does make it extremely clear which drugs are illegal which is why the cartels never need to ask.

[Animats]

> regulators are not accepting any regulated venue

Sure they are. Gemini is registered as a trust company in New York State, and has a New York State Bitlicense. They have insurance covering commercial crime, and fiat deposits are held by a bank and are not assets of Gemini. Not that Gemini is perfect, but they are to some extent regulated by banking regulators who actually look at their books.

Coinbase, though... Who audits the assets behind USDC?

[fallingknife]

They are held in custody by Bank of NY Mellon which is basically the biggest name in the custody business. If BONY says the money is there, it is.

[iudqnolq]

> Problem is Coinbase wants to be regulated, but the regulators are not accepting any regulated venue nor even willing to open discussions. Quite a strange attitude.

Coinbase wants regulations that permit them to do things. Regulators have decided permitting Coinbase to do things would be bad, so they haven't. Regulation doesn't necessarily mean permitting, it can also mean forbidding.

[EVa5I7bHFq9mnYK]

And they are right. It's a complex matter way outside their competence. They are waiting on Congress to clarify.

[lp0_on_fire]

My guess is that SEC is in a holding pattern right now, given the talk of introducing a digital dollar in congress.

[Aloha]

The whole regulatory infrastructure from the SEC expects a security to be backed by or representative of a physical asset of some sort - be it shares of a corporation with tangible assets, gold, or in the case of futures, a commodity. Even bonds are, they're securitized debts.

Crypto has no physical manifestation or nexus, there is no fungible good backing it, nor another which it can be directly (and implicitly) exchanged for, treating it as a security makes about as much sense to me as treating lottery tickets as one.

Edit - I just learned of the Howey test, but I got the fundamentals of it correct.

[lmm]

> The whole regulatory infrastructure from the SEC expects a security to be backed by or representative of a physical asset of some sort - be it shares of a corporation with tangible assets, gold, or in the case of futures, a commodity. Even bonds are, they're securitized debts.

No it doesn't. Corporations are very obviously unphysical, as are debts. Securitizing e.g. music royalties is completely normal.

[dataflow]

> Corporations are very obviously unphysical

I think that misses the parent's point. Corporations own physical assets (like buildings) and things with accepted intrinsic value (fiat currency). but they also indirectly own rights to other things that are indirectly backed by physical stuff in a similar manner (like shares of other corporations, etc.). That's in contrast to something like Bitcoin which doesn't come with a direct or indirect right to anything with intrinsic value.

[lmm]

> I think that misses the parent's point. Corporations own physical assets (like buildings) and things with accepted intrinsic value (fiat currency). but they also indirectly own rights to other things that are indirectly backed by physical stuff in a similar manner (like shares of other corporations, etc.).

Not necessarily. Sometimes a corporation's value is based on something purely speculative, like a drug patent that may or may not work out, or even something that's widely thought to be worthless, like hot tips on the search for Bigfoot. That's completely normal.

[dataflow]

Do you have any examples of this? A corporation that owns literally nothing, whose entire value is based on something speculative (like a drug patent), and who has a traded security?

[lmm]

Getting to exactly $0.00 in the company bank account probably requires an improbable level of fine-tuning (if only because you need enough to file your annual registration statement or whatever), but ISTR Retrophin was down to something like $3.15 + some valuable drug patents at one point in its penny-stock days.

[Aloha]

IP is a tangible asset, one that can even be given a value before proven.

[peyton]

SPACs are just pieces of paper sitting in Delaware somewhere.

[danaris]

...Which is more or less what many of us have been citing all along as a reason why cryptocurrencies are bullshit that shouldn't even be allowed to exist.

[fnordpiglet]

No, you still are wrong. It has to be backed by an enterprise. Commodities are regulated by the CFTC. There’s no need for a security to be back by physical assets. A corporation can have no material asset backing (in fact some retailers have no assets at all, everything is rented or purchased on warehouse lines of credit with the expectation they can generate cash flow with minimal to zero capital investment; but their shares are still securities because they’re backed by an enterprise. I find it strange you learned of the Howey test but didn’t understand this, as it’s very clear in the description, a security must be:

An investment of money In a common enterprise With the expectation of profit To be derived from the efforts of others

[jfengel]

Nobody trades lottery tickets. If they did, it might draw regulatory scrutiny too.

[TylerE]

Terrible examples. Lottery syndicates are absolutely a thing.

I remember reading a syndicate that calculated a particular state lottery jackpot (I want to Virginia.) had grown to a point where it was well into th profitable zone so they sent hundreds of people to virtually every gas station in the state.

They literally bought every single possible combination (this was pre powerball, so this was merely millions of tickets and not billions.)

Obviously they won. This particular drawing was so rich that the only way they could lose was if 2 or more others bought the winning number also. Even if they had split it 50/50 it would still have been profitable.

[Aloha]

As it rightly should!

I think crypto is somewhere script and private fiat currencies but traded like a security, and probably not legal to be openly traded as they are, a legal terra nullius. Until there are court decisions or congressional action to firm up this situation, it will persist as a gray area.

[TylerE]

They aren’t even saying crypto is a security, just staking crypto.

[xiphias2]

Staking is definately a promise of higher return with risk factors, so of course it is security.

[22c]

There's not necessarily an expectation of profit when staking crypto.

[yosame]

Why would you bother staking if you didn't expect a profit?

[22c]

In many projects, staking allows you to participate in governance.

You might also want to stake in order to keep up with inflation. If you make 10% in token interest, but the supply has increased by 20% in the same time period market cap decreased, you've probably lost money overall. You're still better off staking than holding in your wallet.

Point is that staking is not necessarily done as an expectation of profit (regardless of how crypto exchanges might advertise it).

[1vuio0pswjnm7]

They already got a Wells notice last year about their proposed "Coinbase Lend" program. They cancelled the launch.

https://www.coinbase.com/blog/the-sec-has-told-us-it-wants-t...

Coinbase's General Counsel used to work at Facebook. Just a random factoid.

No doubt he's telling us the truth when he claims he had "no idea" why his employer might be sued.

[CalChris]

Does Coinbase traded crypto pass the Howey Test?

https://www.jdsupra.com/legalnews/cryptocurrencies-and-the-s...

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

[robocat]

Here’s the Coinbase argument that staking is not a security: https://www.coinbase.com/blog/coinbases-staking-services-are...

And I find it odd that your referenced article mentions three tests, when it seems to be normally listed as four prongs: https://duckduckgo.com/?q=howey+test+prongs

[crystaln]

Some likely do, others likely don't. Bitcoin is not a security, Ethereum likely is.

[grensley]

Somebody's basically got to go through and sort them all.

[fnordpiglet]

No, that’s not correct. They have to be tested against the Howey test specifically that there’s an enterprise of some sort backing it. This is why securities are distinct from commodities, foreign exchange transactions, or buying baseball cards.

Crypto currencies can easily be viewed as securities if they meet certain criteria and some have been declared as such. But it’s far from settled that the SEC broadly has domain over crypto currencies, or if they’re commodities, or more neutrally currencies. They trade and behave much more like currencies or commodities, but some things like staking services behave more like securities. But most definitely “whatever the SEC wants” isn’t the criteria.

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

[tootie]

I think cryptos bull market was fueled almost entirely by the regulatory vacuum in which the markets operated. We already have regulatory regimes for every type of financial instrument and transaction. Crypto shouldn't need special rules. If it's a currency, then great it's illegal to mint currency in the US so you're banned forever. It's definitely not a commodity, so that means you live life as a security or else. A security with no interest payments, dividends or equity stake. But definitely capital gains tax.

[HWR_14]

You can mint currency in the US, as long as you cannot be confused for USD (or probably other currencies). And capital gains isn't tied to it being a security at all.

[unyttigfjelltol]

The problem is you get caught in a lot of red tape if you want to issue securities with no intrinsic value whatever. For good reason-- the SEC's mission is to stop scams and a valueless offering is the archetype of a scam.

Isn't crypto more like a service, rather than any of those things? You deposit some, withdraw some, and in between you get an account. Like a banking service. Which is when the banking regulators properly should shut it down.

[jjk166]

Whatever regulatory regime arcade tickets fall under would be the appropriate set.

[klooney]

Wouldn't that cover market makers in commodities markets too though?

[yucky]

  > The SEC has a very loose definition of a security - vaguely...

Vaguely written laws are an awful idea and anybody who supports the idea that this is normal should rethink that position.

From a regulatory standpoint, crypto is a new thing and the regulations need to be clear and concise and widely understood. Making the argument "Because the government said so" will elicit no sympathy from logically minded folks.

[digitaltrees]

What a silly definition that is. So are Pokémon cards securities then?

[batiudrami]

No because there is a game and the game is the main reason to own them; appreciation of value of rare cards is a by product and not the designed intent or the main reason to buy cards.

If Pokémon was marketed as “hey buy these cards they will be worth more tomorrow” (actual or implied marketing) then you could make that argument, which has gotten those NFT “games” into trouble with the SEC.

[enra]

Isn’t most crypto marketed this way as well? To buy coins or tokens, buying in into some kind of ecosystem. You don’t necessarily make any money, 1 etc is worth 1 eth tomorrow.

You only realize any gains or losses if you sell that 1 eth and eth to usd/some other currency value has fluctuated.

[chrismarlow9]

What about beanie babies?

[Lutzb]

What about baseball cards

[extheat]

Is the SEC going to start regulating gold now?

[dottrap]

Gold is classified as a commodity. The Commodity Futures Trading Commission (CFTC) is the federal government agency that regulates the commodity futures and other commodity derivatives, not the SEC.

[trompetenaccoun]

The CFTC says they're in charge of cryptocurrency. They're already actively enforcing it too, the CFTC has brought multiple prominent cases against people in the crypto speace. For example Avi Eisenberg, FTX/Alameda, Gemini, aso.

It almost seems like there is no regulation nor clear guidance and even different arms of the government can't decide which it is.

https://fortune.com/crypto/2023/03/08/stablecoins-ether-comm...

[danaris]

But, see, until there is clearer guidance, cryptocurrencies don't get to just have a free ride (the way they have all too much up till now). You don't just get to say, "Well, gee, looks like no one is certain which of these agencies gets to regulate us; I guess that means we can do whatever we want and no one can stop us!"

Each agency is going to make a good-faith judgement as to whether they have jurisdiction, and if that means 2 or more agencies start telling you what you have to do...well, maybe you shouldn't have leaped with both feet into a brand-new area where the regulations were unclear just because you thought you could make a quick buck, hmm?

[jjk166]

Regulatory bodies need to be empowered to regulate, and they need to demonstrate their jurisdiction. Like the department of energy can't just start making agricultural rules because agriculture involves energy - it needs to show that congress has specifically given it power to make agricultural rules, which would be pretty unlikely given that there is a separate department of agriculture. If no one knows who is supposed to be regulating something, that's a very compelling argument that no one has been empowered specifically to regulate that thing.

[8note]

Who does work on your gold to make it worth more?

[rnk]

Staking your crypto to make it grow - somehow? Isn't that just them taking your crypto and putting it in some unexplainable leveraged trade like ftx was doing.

[humanizersequel]

No: https://ethereum.org/en/staking/

[rnk]

Ah, that kind of staking. Thanks.

[dreadlordbone]

Jerome Powell

[pdq]

Gold and silver are recognized as legal tender.

[ricktdotorg]

not in all US states. according to [1] the US states that have passed laws making gold and silver legal tender are, as of early 2023:

AZ, IN, KS, LA, MO (pending), OK, SC, TN, TX, UT, WV, WY.

the main reason for these recent law changes appears to be so that tax can not be levied on the sale of gold and/or silver.

[1] https://worldpopulationreview.com/state-rankings/gold-and-si...

[mdorazio]

They regulate the gold ETF shares I own, so yes.

[roflyear]

You can put your gold somewhere that gives you interest without creating some kind of loan? Loans are securities!!

[p0pcult]

Is my house a security?

[cycomanic]

Are you proposing we regulate crypto like realty? That's the thing about all these arguments, crypto proponents want all the advantages of one system, but when it comes to the "disadvantages" suddenly crypto is something completely different.

[polygamous_bat]

Different incarnations of "privatize the gain, socialize the losses". Coinbase became the company it is today because they have the first mover's advantage in an unclear regulatory landscape, and it pulled in profits only because of that regulatory arbitrage. Now they are turning around and playing victim of the same regulatory landscape that made them what they are today.

[verdverm]

REITs exist, the devil is in the detail

[TylerE]

No, because there’s no agreement, no other party, no expectation of bearing interest…

[p0pcult]

Who is the other party in staked crypto?

[TylerE]

Coin base? The other stakers?

[p0pcult]

No, neither of those groups do things to impact the value of the crypto in a way akin to managing or directing a company.

[toolz]

I don't need to consult coinbase or any other stakers to stake crypto. That would be a very broad definition for an agreement, one that's broad enough to maybe include housing, in reference to the GP comment.

[doyouevensunbro]

TIL that I can live in a Bitcoin

[yieldcrv]

a product having utility does not preclude it from also being a security

its just that the SEC isnt applying that logic anywhere aside from crypto. so its either apply it everywhere or make a clear path to exemption that crypto assets can predictably comply with, where nothing has to be filed at all

[s1artibartfast]

I think the more, appropriate analogy is whether a gold bar sitting in my sock drawer is a security.

There are gold bars and there are gold securities.

[erik_seaberg]

It doesn’t have to make sense; hoarding gold was illegal for forty years.

[s1artibartfast]

Honest question, what are you talking about when you say hoarding gold is or was illegal?

[erik_seaberg]

https://en.wikipedia.org/wiki/Executive_Order_6102

[charcircuit]

>vaguely, something you buy with the expectation to make money from it appreciating

This isn't remotely true. A grocery store isn't selling you a security when you go buy an apple even though the store bought the apple for cheaper than it it thought it could sell to you in the future.

Anything you are able to resell can fall under this.

[cmeacham98]

You may want to look up the definition of the word "appreciating"

[charcircuit]

You may want to realize that if the value of apples depreciated, the store could lose money. The store has an expectation that the product they buy will be worth around the same or appreciate. Buying appreciating products means that you will profit more which is in a store's interest.

If you want a better example of something normal that appreciates take for example holiday themed products. They are worth much less before the holiday, there is a pump in value around the avenue and then a dump. Stores have to careful plan how much to buy to not lose money.