[0zemp1c]

I actually agree with Armstrong here - the SEC has had plenty of time to assess the market for crypto products and offer clear rules...it almost feels like the indecisiveness is an intentional policy used to cow the industry.

[arcticbull]

That's one way of looking at it.

The other way of looking at it is that everyone who went to the SEC and asked them if they could do something was told absolutely not. The people who didn't ask seemed to be getting away with it. So everyone stopped asking. However that didn't change the facts of the situation.

At some point even the mightiest ostrich must get rekt.

[rekttrader]

The sec is not a supervisory agency, they’re a regulator meaning they step in after the fact for investor protections.

The sec had plenty of open sessions where folks in the industry would ask for guidance and yet it was not gotten because they don’t tell the capital or crypto markets what should be in the markets they’re here to pull down the things that shouldn’t be.

The sec allows “junk bonds” if you disclose the risk, the credit default swap maybe shouldn’t exist but it does... and is one of the most heavily traded securities.

Heck, you can buy VIX for CDS... let’s think about that for a second... that’s a mortgage, packed into a portfolio, that has a derivative, and that derivative’s volatility is tradeable.

That’s a FAAAAAAAAAAR more speculative asset than crypto and yet it still trades at higher volume than crypto does.

[arcticbull]

> That’s a FAAAAAAAAAAR more speculative asset than crypto and yet it still trades at higher volume than crypto does.

The difference is that most volume in crypto is fake, and the price is controlled by a small cartel of exchange owners and an $82B Bahamian counterfeiting operation whose 'bank' is run by the creator of Inspector Gadget. That's the risk that's not disclosed.

[robopsychology]

If the price is controlled why does it drop so much?

[piva00]

Those in the cartel need exit liquidity sometimes. It's manipulated, not 100% controlled.

[arcticbull]

If you're the house, then you profit when you know where it's going. The bigger the move, the more profit you can make.

[rurp]

While derivatives have certainly been abused and traded recklessly, they aren't inherently bad or reckless. In fact, the first order use for most is to reduce volatility as a hedging mechanism. Selling covered call options to reduce volatility or using a CDS to guard against default risk are normal things that happen all the time, they just don't make headlines because they are common and boring transactions.

Derivatives have uses and risks just like any other financial instrument and need to be well regulated, not demonized.

[mason55]

> Heck, you can buy VIX for CDS... let’s think about that for a second... that’s a mortgage, packed into a portfolio

Are you thinking MBS maybe? CDS is credit default swap, has nothing to do with mortgages

[jpgvm]

I think he means you can buy a volatility index on the market for CDSs for MBSs, it's a derivative of a derivative essentially.

In this case you would want to be long such a product when people become suddenly concerned about default risk of MBS but you yourself don't want to be long CDSs on those MBS.

A good reason for this could be you are worried that similar to 2008 going long CDSs could leave you subject to intolerable counter-party risk while the vendor offering the derivative could perhaps be more solvent in the case your VIX contracts pay out. Or it simply offers you more leverage, "jacked to the tits" in The Big Short parlence.

Very speculative regardless but that is just how higher order derivative products in finance are.

[nostrademons]

The way he described it, he's talking about CDS. "a mortgage, packed into a portfolio (MBS), that has a derivative (CDS), and that derivative’s volatility (VIX for CDS) is tradeable."

CDS is (usually) a derivative on MBS - it's a promise to pay out if a given MBS security defaults.

[jedberg]

Coinbase has asked them many times though. The article even mentions this. They met 30 times to seek clarity on the rules.

[elliekelly]

The SEC doesn’t give out legal advice.

[true_religion]

They ought to. Giving advice is the difference between having the government work with the people, on the same side, and having it be an adversary.

The goal should be legal compliance and productive companies.

Not clarifying what you will or will not prosecute simply creates unnecessary fear and distrust of the system. Think of all the crime that would not be committed if only the SEC said it was criminal before hand. Maybe thousands of people wouldn’t have lost money to crypto scams if there were greater clarity.

[VWWHFSfQ]

SEC doesn't give legal advice because they don't make the laws.

Want legal advice? Talk to a lawyer. But if your council tells you it's OK to push some boundaries then don't be surprised if you get slapped. And if you don't like getting slapped then you can go to court. Which is exactly what is happening. Seems like the system is working as intended.

[jedberg]

The SEC enforces the law, and it should be totally normal for them to say "this is how we plan to enforce this law". By not saying so, they create a lot of unnecessary churn.

Imagine you are outside a store, and there is a police officer outside. You ask them "If I go inside and take some bread off the shelf and walk out without paying, is that ok?". Should the officer say "talk to a lawyer" or should they say "I would arrest you on the way out"?

They aren't offering legal advice, they are just telling you how they will enforce the law. And heck, maybe you'll go to court and get it overturned. But at least you know what enforcement actions will be taken.

[figassis]

You don't need to make the laws to give advice. Are you saying the SEC can't or isn't required? Because not being required does not mean they shouldn't do it.

[linuxftw]

The problem is always something like this: "I'm telling the SEC that I'm doing A, B, C. SEC says it's legal. Later, SEC finds out I'm really doing A, B, C, D, which is illegal"

The SEC isn't dumb enough to be trapped into an opinion that can be twisted around.

[JohnFen]

But this is only a "problem" for those who want to ride right on the line of what's technically legal. People who strive to stay within what the law is trying to accomplish, who are with the spirit of the law rather than the letter, have no such issues.

[true_religion]

I’m just coming at this from a consumer point of view. I want the SEC to be effective so when I invest in some new commodity or security then I know that it at least legal and I won’t lose all my money due to the government declaring it not.

[fallingknife]

Nonsense. The SEC, like all regulatory agencies, provides legal guidance and interpretations in order that people may follow the law. Here is a link to them doing just that: https://www.sec.gov/rules/interp.shtml

[elliekelly]

That’s not even remotely the same as showing up at their office and asking them to apply the law to your specific scenario. That’s what lawyers do. And if your lawyers are unsure they can ask the SEC via the No Action letter process. For CoinBase to say “well we had a bunch of meetings and we asked them to explain the law to us” is disingenuous because of course they’re not going to get an answer that way. That’s not how the SEC works and that isn’t their job. Do you know why they didn’t go the No Action route? Because they knew the answer they’d get and they didn’t like it.

[fallingknife]

> they can ask the SEC via the No Action letter process

So you admit that they do give legal advice. Thank you.

[rekttrader]

Exactly, there here to step in when things go bad. This is regulatory overreach.

[Alex3917]

This reminds me a lot of a different Armstrong repeatedly saying that he couldn’t be doping because he was the most drug-tested athlete in history. In reality, the law is perfectly clear and hasn’t changed in decades, so what would giving clarity even mean?

[latchkey]

If the law is perfectly clear, is ETH a security or a commodity? Gensler can't even answer that question.

https://twitter.com/sassal0x/status/1648338351832064003

[mfer]

Clarity can include explaining how some laws apply in situations relevant to Coinbase or crypto currencies. Sometimes dots need to be connected.

[femiagbabiaka]

Armstrong says they did, and says they met to discuss things like this. We will see what happened in reality during the course of the court case. I don't think it is wise to trust the words of any crypto actors.

[wslh]

I don't agree with you. There are many actors in the crypto ecosystem and sadly the scammers and bad guys have, in general, better execution an exposure that the good ones. Personally I was involved in helping representatives in writing laws to move forward.

If there is no guidance you can build an organization that could be destroyed arbitrarily in one day. SEC had enough time...

I don't want to exaggerate but it seems like the financial establishment is really worried, and not precisely about money laundering and corruption. Those use everything as a tool, it does not matter if it is crypto or your "5 star" bank.

[JohnFen]

> bad guys have, in general, better execution an exposure that the good ones.

So much better that I take it purely on faith that there are decent people in that space. I have to take it on faith, because I haven't actually seen or heard from any of them and so have no evidence that they exist.

[wslh]

I consider others and my company, good actors in the space: think about the space critically and giving transparent feedback and scenarios between the skepticism and the utopia.

[fallingknife]

Securities are legal and Coinbase is a licensed broker dealer which means they are allowed to sell securities if they are registered with the SEC. The SEC is saying that crypto is a security while simultaneously not allowing them to be registered as a security. So they are treating it like a security from an enforcement perspective, but not from a regulatory perspective. They can't have it both ways. It must either be a security, in which case the SEC can regulate it, and it can be legally sold by brokers, or it is not a security, in which case the SEC can fuck off because it isn't in their jurisdiction. They are trying to have it both ways, and that is clearly acting in bad faith.

[vkou]

The SEC isn't saying that crypto is a security.

It's saying that some crypto tokens are securities, and that Coinbase is trading at least one of those tokens.

It doesn't matter how much Coinbase wants a particular token to not be a security, or whether they had 30 meetings, or 300 meetings where they ask for that token to not be a security. If it passes the Howie test, it's a security.

[dgellow]

So, you’re saying that Coinbase knowingly offered unregistered security. And acknowledged that’s not legal. The fact the SEC refuses these securities to be registered doesn’t negate the illegal offering of unregistered securities.

[daedalus_f]

If you look at the recent SEC filing, they present evidence Coinbase likely knew what they were doing was illegal and coached companies wanting to list coins on the exchange on how to remove “problematic language” from their promotional material that might make it too obvious they were selling unregistered securities.

[dgellow]

Yeah, I cannot really see how they can defend their position here. That will be an interesting case to follow, Coinbase legal team will have to be _creative_.

[dlubarov]

Where is this filing? Not sure what that would be since the SEC hasn't brought charges yet.

I don't see an issue with advising companies on what language to use, given that language can absolutely affect whether a token is in fact a security, e.g. based on the "expectation of profit" prong of the Howey test.

[fallingknife]

Advising people that you do business with to not do certain things because you think they might violate the law is not the smoking gun that you think it is.

[daedalus_f]

If your coin meets the Howie test it’s a security and must be registered with the SEC. If you go to the SEC and say “hey, please register my security so I can scam some people”, and they say no, your security doesn’t stop being a security, it’s just not a registered security. Going on to cry about them then prosecuting you for operating an unregistered securities exchange is purile.

[fallingknife]

Your example is idiotic because nobody is claiming that Coinbase is a scam (if they were the FBI would handle it, not the SEC), and because they are a licensed broker dealer. If particular crypto token is a scam, then they can say "you can't register token X because it's a scam." But they aren't saying that. They are just saying you can't register any tokens at all. If they can't be registered as securities, then how can they be securities?

[arcticbull]

For what it's worth their license is inactive and they are not operating in the capacity of a broker-dealer. They acquired the license in 2018, probably as a hedge just in case, but they are not using it.

After all, they are making the case that nothing they list are securities, so if that's true, they wouldn't fall under their broker-dealer license in the first place.

Parent is correct, a broker-dealer may not facilitate the trade of unregistered securities except to accredited investors. So unless the IRS accepts the registration, they would be in violation anyways. Which is why they're pushing the argument nothing they facilitate the trade in is a security at all and therefore exempt from registration.

I didn't read the parent comment as saying that coinbase was operating a scam, but rather that just because ICO A tries to register and fails doesn't make it somehow 'not a security' but instead that it remains an unregistered security. This is true. And in that case it could only be sold (with or without coinbase) to accredited investors.

> If they can't be registered as securities, then how can they be securities?

Simple. Not all securities are suitable for registration. A security that cannot be registered remains a security, it simply cannot be sold to individuals who are not accredited investors. And selling it to the general public would be a violation of the Securities Exchange Act.

Is a car that cannot be registered because it's not street legal somehow not a car? The fact your car fails its emissions check doesn't change its fundamental character. But it does make it unlawful to put on a highway. The DMV isn't bound to accept the registration of 'anything deemed to be a car' and if they refuse, it somehow becomes something else.

Similarly, the SEC isn't bound to accept the registration of 'anything that passes the Howey test' - quite the opposite. After all that would mean any company whose initial S-1 application is rejected could claim that their shares are now somehow actually a commodity so yolo. But that's not how this works. At all.

> They are just saying you can't register any tokens at all.

Yep.

And if the DMV said I couldn't register electric tricycles as street legal vehicles, well, I can't just go ahead and start driving them around can I? No matter my personal opinion on the matter, I'm still going to get pulled over.

Like Brian.

[daedalus_f]

The SEC’s position is very clear - they could be registered as securities and are securities but the SEC is not going to register them because they would like crypto to go away.

Also a licence to operate as a broker does not permit you to operate as an exchange. They are very different things, separated in traditional finance to prevent the sort of shenanigans (like trading against your own customers) that crypto exchanges get up to.

[dogleash]

Complaining about regulation 101 is that rules are "unjustified" if the regulator has foresight, or "inconsistent" if they're reactive.

[thesausageking]

It's "regulation-by-enforcement". Instead of defining clear rules, the SEC just waits and brings actions against the activities it doesn't want to happen. Sen Toomey and others have called out Gensler for doing this:

https://www.banking.senate.gov/newsroom/minority/toomey-secs...

[chii]

The problem is that you can't know what isn't good until you see evidence of bad coming out - then you rule that it shouldn't be allowed.

This is how a lot of safety regulation comes about - from a disaster or a problem that previously nobody knew or understood.

The SEC is likely operating under this sort of outlook.

[thesausageking]

That was a reasonable argument to make in 2013 or 2017. But Gensler's administration alone has issued more than 1,500 actions. At this point, the SEC should be able to codify their interpretations and publish guidance.

One example: a decade after the white paper was published, the SEC still won't say if Ethereum is a security or not. Gensler was literally asked this in front of congress and refused to answer:

https://twitter.com/MatthewHyland_/status/164833448714565632...

This is a project that's 10 years old, has a $250B market cap, and has had tens of thousands of other projects built on it. There's no excuse for the SEC to not have a position on it.

[fallingknife]

The SEC has no power to decide that crypto shouldn't be allowed. That would require legislation from congress. Legislation that is not forthcoming. The SEC is currently doing an end run around this fact by saying that it is a security (which is explicitly legal) but that it can't be registered (which effectively means nobody can sell it). It is a naked power grab by an unelected bureaucracy.

[snacktaster]

The slowness and deliberateness of USA regulators to respond is what has enabled the worldwide crypto economy to flourish in the first place. You think they should have just banned it CCP-style?

This is more akin to "You can have your fun but don't go crazy. But as soon as we start seeing your investors getting scammed we're going to step in."

[traveler01]

Dangerous to side with crypto stuff on Hackernews...

[latchkey]

No, it isn't.

I side with crypto all the time and I see plenty of other people do it too. I also see the same loud voices, with a lot of karma, repeat their tropes over and over again. If people believe that it is "dangerous", that is a sad way to control a narrative.

Here we are 10+ years later and crypto hasn't gone to zero. If anything, it is discussed more than ever. What HN requires is sane responses about crypto, and this is one of them.

[traveler01]

My past experiences with saying anything positive about crypto has being:

- Being downvoted to hell - Comments attacking crypto disrergading completely my opinion

[latchkey]

You get enough karma, a few downvotes always happens and it doesn't hurt as bad. I have people who follow me around downvoting me. Who cares. =)

ProTip: HN isn't looking for personal opinion on crypto. I'm not either for that matter, in either direction. That's why it is easy to rebuke the haters. They are so engrossed with their hate that they can't see that what they are saying is just repeated and boring trope. Easy to score karma against that.

[lallysingh]

I don't think the SEC can do much here, honestly. It's like asking a cop "is this illegal?" For stuff like murder they can say yes. For complicated issues like picking up your kid on Feb 29 when your ex complains about custody agreements only defined for non-leap-years, "we'll arrest and charge you for it, but there's a 50% shot it gets thrown out of court."

There's enough wiggle room between what each crypto product does and the original intent of the law, that this is really asking for a court case to resolve the matter. Hopefully with something clearer than "Apply Howey to this."

The court may end up saying "purely mined currencies aren't securities as long as they don't have X capabilities, ICOs are securities, etc."[0] Which would be very helpful.

[0] I have no idea what they'd actually say, or if the example is reasonable.

[rchaud]

Perhaps you're just taking Coinbase at their word? SEC's assessment appears to be that a business like Coinbase should register as a securities exchange.

In 2021, SEC served Coinbase a Wells Notice over that their "Lend" product (yield in USDC) was likely in violation of established case law, US v Howey and Reves v Ernst and Young. Coinbase discloses this on their own blog, under the hilarious title "The SEC has told us it wants to sue us over Lend. We don’t know why"[0]

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

[legitster]

They don't want to reveal that they are treating all crypto assets as securities. So they are starting with the cases that are easiest for them to win, and building case precedent for them to go after bigger cases.

With the case they are giving there is no reason they don't eventually go after Bitcoin or Ether.

[BLanen]

> We need regulation

> Ok, you're a securities exchange and have to act like one

> NOT LIKE THAT

[vkou]

They have clear rules, it's not clear to me why Coinbase does not think that those rules apply to them.