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.
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.
Are you thinking MBS maybe? CDS is credit default swap, has nothing to do with mortgages
CDS is (usually) a derivative on MBS - it's a promise to pay out if a given MBS security defaults.
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.
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.
Derivatives have uses and risks just like any other financial instrument and need to be well regulated, not demonized.
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.
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.
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.
Second,
> Last month, the SEC issued Coinbase with a Wells notice, which is often one of the final steps before the regulator formally issues charges. It generally lays out the framework of the regulatory argument and offers the potentially accused an opportunity to rebut the SEC’s claims.
It sounds like Coinbase has gotten the answers they were looking for, they just don't like it.
E.g. here's Gensler refusing to answer whether the SEC considers ETH a security - https://twitter.com/sassal0x/status/1648338351832064003
Yes, of course, a lawyer can provide that. But surely, the SEC should be able to provide advice or point to resources on how to be compliant if needed?
If not, I'm really surprised.
It’s not as if no one can ever get advise from the government bodies.
The SEC isn't dumb enough to be trapped into an opinion that can be twisted around.
So you admit that they do give legal advice. Thank you.
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.
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.
Then, you are saying "but I don't know you or your company, so I have no way of knowing.". Well, that is not my job, do your work if you want to change your mind. If you need help I can present you to good people but I assume you can do it by yourself.
Also, again logically, saying that there is no good people in the space, we should first define good people in general. Not trying to sound pedantic but trying to show you that your assertion is about a lot of people, probably in the order or millions.
The point is that scammers are so prevalent it's not worth "doing your work." The ROI on vetting every player in a given transaction just isn't high enough to make it worth engaging. We don't have to do all this shit in the actual financial industry because of regulation and insurance. Nobody's presented a compelling reason to re-evolve those protections because blockchain.
And yes, the assertion is about a lot of people. That's why we put locks on our cars and houses instead of vetting everyone in town. You keep arguing about symptoms without addressing causes.
Let's just cherry pick on DeFi. DeFi had something around 10% of its entire TVL lost last year to hacks and scams. I guarantee you that 10% of the entire 'TVL' of PayPal wasn't lost to hacks and scams.
PayPal has almost 79B in assets. Pretty sure they didn't lose 8B to hacks last year.
The fundamental character of crypto - a market where police and regulators look the other way, but money moves freely - whose biggest rocket ride to fame came from Silk Road - is perfectly suited to attract crime and criminality. Without crypto nobody would even remember ransomware because you can't send millions of dollars in Starbucks gift cards.
This is its niche, like it or not. Because if you're not trying to do crime, classical finance is faster, cheaper and safer.
When you talk about hacks we are shifting the discussion to computer security. Computer security intersects with scamming but they are two different things, you are comparing apples to oranges, it is also a field that nowadays is weaponized and the money invested and gained in the field itself exceed the money in DeFi hacks. Do you know the price in the market of bugs and exploits for Google Chrome, WhatsApp, iOS, etc? The ones exploiting them could be scammers, state actors, etc. The specialthing about DeFi is that hackers are attracted because code is literally money.
There is one more thing that complement and give answer for posts above in this thread: big scams and hacks in the cryptocurrency space are difficult to cash out: significant exchanges use transaction tracing tools (KYT: know your transaction) to freeze assets connected to illegal activities.
No, that's not at all what I was saying. I actually said the opposite: I assume that there are good people in this space despite the lack of evidence for it.
> do your work if you want to change your mind
I don't think that my mind needs to be changed here. We're in fundamental agreement here anyway, so I'm not sure what you think should be different in my thinking.
I just have no way of being able to tell who the good people are. And, ultimately, it doesn't actually matter because I don't deal with cryptocurrency in my own affairs.
I could say the exact same about the finance, defence, and health insurance sectors.
For over 40 years, I've only ever heard bad news about those industries. Still, it would be wrong to assume every single individual actor in those spaces is a bad actor; I know that bad news is widely reported in the media, and good news rarely is.
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.
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.
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.
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.
E.g. Gensler refused to answer whether SEC considers ETH a security - https://twitter.com/sassal0x/status/1648338351832064003
Maybe it's a security, maybe not, but I think it's reasonable to expect some kind of guidance from regulators. The SEC has had 14 years to think about it but still refuses to give any.
https://www.banking.senate.gov/newsroom/minority/toomey-secs...
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.
It's crazy that 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 had tends of thousands of tokens and other projects built on it, and has a $250B market. There's no excuse for the SEC to not have a position on it.
The fact is, there's lack of clarity abound; the SEC is obviously lacking clarity and feeling their way around, yet they take the stance I mentioned, that the law is already clear, and they don't need to engage with the community and other regulatory bodies to create clarity.
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.
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.
- Being downvoted to hell - Comments attacking crypto disrergading completely my opinion
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.
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."
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...
With the case they are giving there is no reason they don't eventually go after Bitcoin or Ether.