We never regulated Beanie Babies.
Seems obvious that Bitcoin shouldn't be unregulated and that there should be no question of which regulator has jurisdiction. Unfortunately that probably needs Congress to act.
https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ether...
Relying on the goodwill of regulators is unwise.
Then a bunch of crypto anarchists showed up and started speculating that these coins would be worth a lot in the future because we could topple the financial hegemony by their powers combined. Okay whatever, still commodity trading.
Then we started getting all these fake Ponzi coins that are standing in for something else. That’s a security.
What is possible with e.g. BTC is that it’s easy to trade at scale. A commodity that’s easy to trade isn't a security. It’s not crypto’s fault that regulators are having a hard time regulating it. That’s the regulators’ problem.
Of course they’re not going to stand aside while people get scammed. Only the anarchists want that. The rest of us just want crypto to be treated fairly.
A commodity is a product. Products are either consumed or used as raw materials. A digital commodity is not a product. It can't be consumed or used, because it's entirely imaginary.
I think a better term is "abstract unit of account".
You consume a BTC by using/trading it. You consume gold or maple syrup by using/trading it. Just because the uses are a little different doesn't mean it's incompatible with the definition of commodity. If I started using gold in a nonsensical way you wouldn't start saying "oh now it's a security", would you?
So you consume bitcoin the same way a central bank consumes gold: by sitting on it, selling it when you need to, or buying more in times of expected turmoil.
Bitcoin is far younger than gold (12 years vs thousands), so its obviously more volatile.
https://www.statista.com/statistics/299609/gold-demand-by-in...
Consume:
- eat, drink, or ingest (food or drink).
- buy (goods or services).
- use up (a resource).
- (especially of a fire) completely destroy.
- (of a feeling) absorb all of the attention and energy of (someone).
And again, that is by design of both the instruments themselves and the massive PR campaigns/grifts around them.
The whole trick is attempting to position these things as “the half of the definition of commodity that means this has intrinsic value but not the other half of the definition which says it’s a raw input,” or “the half of the definition of a security that means You Can Make Money, but not the other half that says I can be regulated as someone selling a You Can Make Money instrument.”
The point is that you cannot consume crypto, it's a problem which is understood inside the community, that's why the push for NFTs which started as legitimate art to enjoy on huge 8K screens or VR headsets but quickly ended up becoming Twitter avatars built for the purpose of trading and offloading to a bigger fool.
Hence the SEC is right to clampdown on crypto for violations of securities law, in order to prevent bubbles that emerge when the only use for something is trading it for something else. We already have that, people who want to participate in that game know where to go, the stock market.
> > for a direct analog to your example, by showing off your wallet balance
That's the most circular thought I've ever heard.
But then people had they idea that they could still make money from it by grifting people if they just added layer upon layer of complexity in order to disguise the ultimate uselessness of the underlying technology. That is where all of your Ponzis, rugpulls, NFTs and everything else comes into the picture.
Bring on the digital cash IMO but bearer instruments underpinning any large scale finance is a recipe for disaster.
https://www.pewresearch.org/internet/2005/03/06/part-2-the-r...
I don't know what it is about crypto that makes HN commentators want to make the most ridiculous, put-downy statements without evidence to back it up.
Crypto is not mostly useless, it is just that people don't like the uses. crypto is absolutely massive for avoiding capital controls in countries with inflation, etc.
I also think there are useful legal uses, but yes - where crypto has the best comparative advantage is when people are trying to circumvent harmful laws. Not every country is a (relatively) well-run procedural democracy. Crypto helps people route around that.
Crypto has legitimate use as a rebel medium. It’s also plagued with criminality. Its promoters had a decade to clean up its act, yet refuses to self regulate.
That’s soured the public’s mood towards the whole enterprise. If crypto’s benefits are niche, its development should be niche. And if its sole beneficiaries are people in failing foreign countries, it might make sense to put the whole thing under the aegis of State versus continuing to create chaos from the private sector.
This only applies to literally one or two cryptocurrencies, stuff like Monero. They're very much the exception to the rule. Most cryptocurrencies like Bitcoin and Ethereum just publish the entire ledger which is constantly being pulled in by the PLA, the SEC, the FBI and myriad other law enforcement authorities the world over. Not to mention Chainalysis.
If the government that's oppressing you is capable enough to oppress you they're more than capable enough to, in the fullness of time, deanonymize your transactions and send you directly to jail for them. You're not just defending against the current start of the art tech but all future improvements - against an adversary with dramatically more resources than you have.
Illicit transactions on public ledgers are simply prosecution futures. People get jail time constantly for crypto transactions.
If I were a dissident in a country like the PRC hypothetically, I'd run like hell from crypto. Talk about asking for trouble.
That's before we even get to the point of how you plan to acquire these currencies without the government noticing.
They have a use: gambling and speculation at a massive decentralized offshore casino. Coinbase and Kraken are the cage. Binance, for example, and DeFi are the table games.
Inflation hedge means mantaining parity against a weighted basket of stable currencies such as USD/EUR/CHF/JPY. Maybe gold?
Bitcoin didn't mantain parity at all, it's up some 20,000% since 2013 and +∞ since its inception.
So crypto failed as inflation hedge too, because the world of finance is very specific, you can't say 'this asset is an inflation hedge' and then it's up 20,000%
It also failed as a tool for capital controls and tax evasion because if you do that sort of things you don't want publicity...what happened is that crypto-bros and crypto-enthusiast went on to scream off the top of their lungs and it resulted in the death of the largest capital control avoidance use case: getting money out of China.
Nobody uses Crypto for getting money out of China anymore.
Dai and other stablecoins maintain parity and are what is mostly used.
> It also failed as a tool for capital controls and tax evasion because if you do that sort of things you don't want publicity...what happened is that crypto-bros and crypto-enthusiast went on to scream off the top of their lungs and it resulted in the death of the largest capital control avoidance use case: getting money out of China.
I don't know what to tell you, these are heavily used behind-the-scenes in the dollar black market in places like Argentina, etc.
> Nobody uses Crypto for getting money out of China anymore.
Yeah, the informal economy is not actually very large in China, it's not a good example.
Dai and stablecoins are currencies issued by private companies, if the private company sponsoring it were to disappear, the decentralized and federated (or whatever) community won't be able to support such a huge undertaking.
Besides the whole thing is pointless because whatever authority or control system you are evading with crypto sooner or later you'd have to come back into it, because nobody sells food, water, shelter, houses for crypto. Nor bitcoin nor stablecoins. Actually it's worse because the authorities will be waiting for you at on and off ramps.
HN has many people who understand how technology work and a smaller but still large number of people who understand economics. Cryptocurrency has a few people like that but also a ton of get-rich-quick types who think their best work is making random claims until someone buys whatever they’re selling. We’re a decade and a half into that, with billions of dollars of real money pumped in and almost no benefit outside of some early investors being able to cash out before the inevitable dip.
At this point, the onus is on anyone promoting cryptocurrencies to show up front why they’re different than their waves of predecessors. One big challenge here is the inherent conflict of interest: unlike other things which have come in and out of popularity, someone who tries cryptocurrency but realizes it’s not really useful to them doesn’t have an option for getting out without a financial loss which doesn’t involve finding a buyer for something they know isn’t really worth the price. If you backed MongoDB a decade ago, you can just switch to Postgres without either eating a loss or finding someone to buy your old Mongo server.
This also leads me to your next sentence: for years, the claim was that cryptocurrency was going to transform the financial world and beyond. Sales guys went on at length about how you’d use blockchains to buy coffee and a ride to work, make sure the farmer who grew your coffee beans was organic, store your software licenses, record the deed to your house, etc. They couldn’t explain how any of that would work and dismissed criticism, and were especially upset if people said the only real use cases seemed to be illegal transactions. Now, in 2023 we’re back to the primary use being breaking laws, hoping that the government in question chooses not to monitor cryptocurrencies?
> Crypto is not mostly useless, it is just that people don't like the uses. crypto is absolutely massive for avoiding capital controls in countries with inflation, etc.
There are literally hundreds of millions of people who're into cryptocurrencies...and you clearly don't have a clue what kind of people are into it and to what degree. I'd suggest not to make up statements like this if you want your opinion to be taken seriously. FYI bypassing capital controls with cryptos does not necessarily mean "breaking the law". Learn a thing or two if you're going to spout nonsense.
Can you cite an example where evading capital controls is legal?
etc doing some heavy lifting here. The article is about US-based crypto company. How is your list of massive uses applicable to US specifically? (I actually have sympathy for coinbase for at least trying to follow some rules)
Even back in 2016/17, many people involved were openly bemoaning how 80+% of ICOs were unregistered security offerings to vaporware.
You can almost pinpoint the inflection point at which Coinbase decided their goal was short-term profit maximization vs developing a healthy ecosystem. The company in the last 5 years is completely unrecognizable in contrast to when there were only 3 coins you could buy from them (USDT, BTC, ETH).
No matter how this case winds up, Coinbase is in a terrible financial position. If you were a Wall Street bank, would you give them financing right now?
they literally started bitcoin and were the guys mapping out what they wanted from a digital currency over the previous twenty years, this is well known history
So yes, it was by design that it’s hard to regulate.
> I am fascinated by Tim May's crypto-anarchy. Unlike the communities traditionally associated with the word "anarchy", in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary.
Secondly, a lot of features make it harder to regulate than cash. Off the top of my head, being able to transport it over national borders via the Internet. Storing arbitrarily large amounts of it in zero physical square meters. Keeping it relatively secure without having to rely on third parties (banks) gaining knowledge of your ownership, etc. etc.
That’s the “anarchy” the paper refers to.
In the paper, the goal was not to topple governments. It was to build a digital cash equivalent where the payment processing happened in a distributed and ultimately trust-less “anarchist” manner. Thus allowing people to transact as they do in cash, but digitally.
All this anti-regulation no laws style of anarchist stuff is downstream. Sure it’s adjacent, but also easily conflated.
Anyway, to be super clear, being resistant to the rule of law is a very different property than being resistant to centralized control.
Cash is decentralized.
Credit, debit, ACH, are centralized.
Crypto is decentralized.
All are subject to the rule of law. But only centralized transactions can be manipulated without coercion or use of force against a one of the parties involved (if they are unwilling to abide).
I don't know any technology that fundamentally cannot have laws created governing its use. It’s just not possible to prevent someone from legally regulating something. But it is possible to design systems that don't require 3rd parties to mediate transactions and do require an actual authoritative monopoly on violence to manipulate, as we’ve seen with cash and as is the case with BTC.
> Then a bunch of crypto anarchists showed up
you've just posted a pile of opinions that aren't about the actual history, which you were just wrong about
There isn't (AFAIK) a commodity that operates in this manner. Owning a lot of gold doesn't mean that I'm able to unilaterally adjust how gold is mined or obtained, for example.
Any examples of anarchists doing what you’re saying for extended periods of time like cryptobros would be helpful to understand.
Thanks.
Crypto proponents (like every other industry that has come before, and will come after) want zero regs.
Everything else is just hand waving.
Regulators clearly know (from these filings) exactly what’s going on.
Congress needs to pass laws to spell out exactly what falls under which new regulations.
It’s clearly possible (see: Australia, NZ, UK, EU, etc, etc)
[0] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi...
"The agency instead must point to 'clear congressional authorization' for the power it claims."
While googling those terms I also found that gold is defined as a currency in the open market.
I'm pretty sure the us sec will figure it out for us
Currencies do not exist outside a monetary system. If I sell you something, and accept skittles as payment, that does not make skittles a currency.
Coinbase similarly ran into issues not because they were selling crypto but from related activities which fall under SEC regulations. It’s one thing to operate an auction selling pigs or crypto, but when you start getting into ‘related activities’ they don’t necessarily fall under the same umbrella. Read up on “Pork Bellies” and you might start to understand the issues.
A court might disagree. The CFTC could potentially disagree, although yesterday's agreement makes me think they may have given up on that to some extent. But I actually think it's pretty clear that any cryptocurrency project offering a reward for "staking" or similar is a security.
[1] https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
I agree that staked projects and derivative projects are securities since they are fundamentally a representation of or proxy for the actual thing of value, BTC, XCH, formerly ETH, etc.
What they mean is every coin/token they looked at. If asked to evaluate litecoin for example probably they'd say it's not a security as well. They don't need to pass judgement on each of the thousands of coins individually because definitions and common sense exists.
The same as units in my LLC aren’t. When I sell them, when they’re traded, that’s when they become a security.
Commodities have real-world uses (e.g. gold, oil, frozen orange juice), securities represent a claim on some productive enterprise. Cryptocurrency is neither.
Beaniebabies were effectively regulated and taxed like commodities. Commodities do not require a real-world use. All they are are tradable non-currency things which can result in capital gains.
The speculative (HODL!!) cryptocurrencies should probably be treated like commodities, and regulated as such by the CFTC. The cryptocurrencies that are actually being used like currencies (e.g. actually used to buy things) should be regulated like foreign currencies, which would also be regulated by the CFTC (this is essentially the same exact thing as Commodities trading, but with simpler accounting rules which reflect the much higher liquidity, divisibility, and likelyhood that a unit changes hands). Neither of these scenarios involve the SEC. The SEC should only be involved when coins are being issued like securities (e.g. as a way to raise funding and sell financial stakes in some kind of enterprise).
IIRC, the IRS and CFTC have already issued rules to treat NFTs as collectibles.
So... none of them? How long are y'all going to carry on this charade?
https://www.law.cornell.edu/definitions/uscode.php?width=840...
A whole lot of things that aren't commodities in common parlance are within the jurisdiction of the CFTC because they are traded with futures contracts. This includes some securities. A whole lot of things that are commodities in common parlance are not within its jurisdiction, as the CFTC only deals with futures contracts. A number of federal agencies usually share jurisdiction over the same commodities.
Orange juice concentrate is a commodity by any definition. The CFTC regulates futures contracts on orange juice concentrate. It does not regulate its production, sale, transportation, or anything else unrelated to futures contracts. That is the job of the USDA, FDA, DoT, and so forth.
Stocks are securities. As they are traded with futures contracts, they are also commodities. The CFTC regulates futures contracts on securities jointly with the SEC. It does not regulate any trading of securities that does not involve futures contracts. That is the job of the SEC. The fact that people trade stocks with futures has never hampered the SEC's efforts to regulate them.
https://www.cftc.gov/IndustryOversight/ContractsProducts/Sec...
Sure, genesis block yada yada but Satoshi (if he were alive/inclined) is still a multi-billionaire from behaviors that are pretty similar to what we call premining.
They are claiming a bunch of the newer cryptos like SOL are, though.
1. Unregistered exchange for several tokens the SEC believes are securities:
> This includes, but is not limited to, the units of each of the crypto asset securities further described below—with trading symbols SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO—(the “Crypto Asset Securities”).
2. Unregistered sale of securities related to the staking program for XTZ, ETH, ATOM, ADA, SOL. This in particular has a full, point-by-point rationale for why they are defined as securities under the Howey test (in short, you deposit money, and the terms make clear that it's Coinbase's money at that point, not your money, so definitely an investment; staking involves a common enterprise; and it's clearly advertised as making you money based on Coinbase doing stuff with your investment).
Maybe Coinbase should have listened to its own advisors on how to tailor a prospectus to not meet the Howey test definition of a security... or maybe their advisors didn't do a good job in the first place!
"The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or non-speculative or whether there is a sale of property with or without intrinsic value."
I think it is plausible that all pure staking initiatives will go. I don’t think you have much of an argument here but I could be wrong. It will definitely be an interesting case to watch.
This is where I see the "staking makes a cryptocurrency a security" fall apart. There are a handful of definitions for "staking" and some of them definitely meet the criteria of "a common enterprise with profits to come solely from the efforts of others" however many do not.
1. Ethereum's staking at a protocol level requires you to run a staking node and you are paid for what is basically an SLA between you and the network and you only get paid if your node maintains a certain uptime, is kept up to date, and operates correctly. That I don't believe meets the criteria as it requires direct, sustained effort from you the operator (even if it's generally low effort).
2. Cardano's (or Tezos') staking is similar. Stake pool operators are effectively the same as Ethereum's stake node operators. But even delegators (who aren't required to stay online) still provide a service in that they are picking the stake pools who then fill the SLAs. If they pick pools that can't meet the requirements then the delegators don't get paid until they can find one that does.
3. Meanwhile you have networks like Algorand where participation in consensus does not effect staking rewards and you never have to perform a service to get paid out by the network. Those would meet the criteria by my understanding.
4. And then you have all the DeFi "staking" which is better described as lending or liquidity pooling. You aren't doing anything proof of stake related but are just lending out capital as an investment.
I can't speak on other networks but generally I found that networks fell into one of those 4 categories. The first two only pay people who provide a service back to the network while with those like the third, even if you can provide a service back to the network, you aren't required to to be able to get paid. And then the fourth category is just a security outright.
Edit (because I forgot to mention it): With regards to Coinbase's staking program, it's in a weird spot. With those you aren't directly staking but you are outsourcing the responsibility to a 3rd part (coinbase) to stake for you. I wouldn't be opposed to considering this type of custodial staking as meeting the criteria to be a security but I don't think proof of stake at a protocol level constitutes "a common enterprise with profits to come solely from the efforts of others" as they require work on behalf of the participants to get paid out.
Ethereum was funded as a public ICO.
Which is weird. In my humble layman's opinion, an ICO looks an awful lot like a security offering, while a staking protocol doesn't.
Compare the simplified statements "Buy my token! It's going to be great in the future!" with "Let's pool our money and execute an agreed-upon protocol where those who have the most get more". Why is the SEC wasting time by going after all the weird ones before the easy pickings?
ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.
If you pay money in now and get more money out later, and someone else runs the machines, then it's just a loan.
Then there's a question of where to draw the line with cloud hosting, and I have no opinion about that. Someone will sell a service that's barely on the right side of that line, wherever it is.
> Just normal for government officials to cover their own asses primarily
I agree - I just disagree with people suggesting that the same logic doesn't apply to regulators and their actions.
They want to keep it unclear precisely so they have the ability to maneuver in the future and regulate if they want. That is the exact opposite of the 'super clear' regulations & guidance that GP was suggesting currently exists.
I work in a regulated industry. I have my criticisms of Gensler. And I’ve (separately) profited off crypto.
The regulations for non-Bitcoin exchanges were clear from the start. Nobody liked that clarity. And the regulators spent a few years navel gazing. But the legal advice I got at the start has remained consistent: the operators are putting themselves in jeopardy.
It should be easy yes or no from the lawyers, I'm hearing that the law is incredibly clear and not really prone to misinterpretation so it shouldn't be an issue. Or maybe Gensler's lawyers are "extremely inexperienced" if they couldn't figure out such an obvious issue?
> It should be easy yes or no from the lawyers...
When has that ever been the case, and why should it be the case now?
[edit] The law is not just what's written but the entirely of case law. The SEC has provided a framework for analysis of securities in the context of crypto. It's here. [1] And it builds on the DAO report, here. [2]
[1] https://www.sec.gov/files/dlt-framework.pdf
[2] https://www.sec.gov/litigation/investreport/34-81207.pdf
I have no doubt he has discussed the status of ethereum with SEC lawyers before.
Because they're a legal body and what they say off hand is precedent, so of course they have to be measured and thoughtful. This was a shameful display, but not by Gensler.
> I have no doubt he has discussed the status of ethereum with SEC lawyers before.
Me too, but again, I refer you to the DAO Report and the Framework for “Investment Contract” Analysis of Digital Assets
> But that entire notion belies the idea that the regulations are super clear or predictable. The whole reason for this kind of maneuver is because the regulations are not clear or predictable.
They're quite clear, and the whole reason for this kind of maneuver is showboating and pandering. Based on this thread it seems to be working.
In a similar vein I'm confident that Brian and his attorneys have spoken and concluded that they're almost 100% certain to be securities, and for that reason, they chose to avoid working with the SEC at all costs at every point along the way. But of course that determination would undermine the business, so off to court we go.
Because the whole point of the rule of law is that the law same law applies to any clown. If the head of securities law in the country can't tell you whether a basic thing is legal or not then why even bother having a congress and elections and any pretense that we live in something other than a corrupt oligarchy?
> [edit] The law is not just what's written but the entirely of case law. The SEC has provided a framework for analysis of securities in the context of crypto. It's here. [1] And it builds on the DAO report, here. [2]
If the SEC themselves is incapable of applying their framework to the second-most-prominent entry in the category of things it's designed to analyse, then what is that framework good for?
In the linked video the questioner is asking about about potential future cases/decisions and one reason not to comment on specific cases/decisions, as is what happened in the video[0], is that an agency does not want to telegraph their moves ahead of time, since that would give potential criminals a heads up that they are on a deadline and need to focus on cover up their crimes.
If the questioner needs insight into how policing actions are decided they can ask about pervious cases/decisions and the reasoning that went into those pervious cases/decisions.
That's putting the cart before the horse. Catching criminals is supposed to be a means to an end; compliance with the law is supposed to be the end, and getting people to voluntarily stop doing crimes is a win. "We can't tell people what the law is because then they might stop breaking it" is absurd policy.
> If the questioner needs insight into how policing actions are decided they can ask about pervious cases/decisions and the reasoning that went into those pervious cases/decisions.
The whole reason people are arguing about this stuff is that there are no clear precedents (or there are multiple contradictory ones); crypto is similar to a lot of things but not exactly the same as any of them.
The questioner was not asking about what the law was. They were asking a future potential case or enforcement action.
The questioner in the video could have asked about the law and the details and how it has historically been enforced. They did not though. If they did and questions were still dodged then I might agree with what you are putting out here. At the very least I would think the answerer is not well versed on the topic at hand, but I would want the answer to be straight forward with that.
> The whole reason people are arguing about this stuff is that there are no clear precedents (or there are multiple contradictory ones); crypto is similar to a lot of things but not exactly the same as any of them.
I do not know about that. I think the majority of new crypto coins that have made it into the ads I see are scams, probably because the ones that are scams push for advertisement more. Of those they seem to fall into pyramid scheme and obvious security that would probably run foul of other laws as well. In these cases if a lawyer is not giving a clear answer then you need to hire a new lawyer.
Outside the obvious scams I assume there are people who are at best skirting the law at best and some are turning a blind eye, pretending the law is confusing on the topic when it is really not.
So far it seems like the SEC is ruling and enforcing the above cases, clear cut cases. If you have a part of the current enforcement that is on something that is ambiguous rather than pretty clear cut then I would be interested what makes it ambiguous and potentially reading more into it.
This article is in significant part about the SEC going after Coinbase, which made a significant effort to stay on the right side of the rules and only allow crypto tokens that operated in ways that are closely analogous to e.g. frequent flier miles. They wrote a great many blog posts giving their perspective and calling for regulatory clarity.
They list ICOs by the fistful.
I sorted alphabetically and only had to go as far as AAVE to find the first obviously-a-security.
They really didn't try and stay on the right side of anything.
Frequent flyer miles are generally considered to fall under the IRS rebate rule. They're considered rebates on purchases. There's no investment of money (they're a rebate on a purchase), there's no common enterprise, there's no expectation of profit derived from the efforts of others (after all airlines generally devalue miles 10-20% year over year). It fails all prongs of the Howey test. Not to mention you don't own your frequent flyer miles, the airline program does.
If you find me a crypto token that operates 'like a frequent flyer mile' I'll happily tell you why you didn't.
> They wrote a great many blog posts giving their perspective and calling for regulatory clarity.
They wrote a lot of blog posts, I'll give you that. They have regulatory clarity, they just don't like it. [1, 2, lots of case law].
[1] https://www.sec.gov/corpfin/framework-investment-contract-an...
[2] https://www.sec.gov/litigation/investreport/34-81207.pdf
Seems pretty dubious when there are well-documented cases of the miles being worth a lot more than the purchase (from the famous pudding guy onwards). Hell, mine explicitly advertises the option to "buy miles".
> there's no common enterprise, there's no expectation of profit derived from the efforts of others
Miles become more or less valuable depending on how well the airline is doing, exactly like how these tokens tend to go.
> Not to mention you don't own your frequent flyer miles, the airline program does.
The whole point of Howey is that the details of the ownership structure don't matter, the overall economic effect is what does.
You can sell your token in this case right, but you can not sell the airline miles, not in the rule/tos of the miles program, at least that is my understanding.
>> Not to mention you don't own your frequent flyer miles, the airline program does.
>The whole point of Howey is that the details of the ownership structure don't matter, the overall economic effect is what does.
This does not seem the structure or details of ownership, it is flat out whether you own the miles or not.
If you have an example of token that acted more like an airline miles and there is an action against it or because of it I am interested to read more about that token and SEC reasoning.
There may notionally be a rule against it, but you certainly can - my airline will let you transfer them (for a fee in miles) and they certainly know or should know that buying and selling happens.
> This does not seem the structure or details of ownership, it is flat out whether you own the miles or not.
You're the beneficiary of them and have contractual rights to them, whether they're notionally held by some other party or not. If anything the idea that you don't own them makes the argument for it being a security stronger.
I think you might mean the "potential suspects" of the investigation.
"Criminal" as a basic categorization is binary in nature. All non-criminals are also "potential criminals." No criminals are "potential criminals" (they've already realized said potential).
I've rarely received such an unequivocal binary response from a lawyer...
https://www.sec.gov/divisions/marketreg/mr-noaction/2013/fun...
I take it as a stunt intended shift the layman's perception of Coinbase's legal responsibilities onto the SEC. They're counting on cryptobros using this "SEC won't tell us what's legal" talking point to affect favorable political / legislative change.
But newsflash: government regulators aren't obliged to act as your legal council.
The stance is that applying it to digital tokens as unregistered securities means applying it to other places, like Nike shoes and baseball cards, just because any random individual expected to profit when they bought one
that this framework is not applied everywhere, specifically how congress exempted spot commodities and commodities derivatives from the SEC framework specifically because it was untenable
That there is a difference between a digital commodity and a digital security that is mutually exclusive, but the SEC has provided no way of understanding that distinction, and now has resorted to just arbitrarily claiming random assets are securities in cases against the people that trade those assets
That it is impossible to comply if it was applied everywhere, as registered security status inherits tons of unrelated regulations to protect incumbent intermediaries
That the SEC will never achieve congress’ delegated mission of investor protection and only hurt investors
And that actually inconveniencing everyone will put this framework under a constitutional test that the SEC probably needs to avoid, but I’m all the SEC going after the entire sneaker trading ecosystem as unregistered broker dealers as fallout to their crusade just to prove they aren’t just trying to debilitate crypto
(The staking program has a separate evaluation)
If you were to stake your Air Jordan's with coinbase and Coinbase told you in a years time you'd have 2 pairs, it would become a security.
because the sneaker trade market focuses on sneakers that are released with artificial scarcity, where many participants in that market buy with an investment of money, with a reliance on the issuer and others to keep them scarce and valuable and promote them, with an expectation of profit.
the SEC is basically saying if any random person has an expectation of profit guiding their purchase at any time, the entire asset and all transactions is a security and everyone that is trading it needs to be a registered broker dealer or registered promoter, and then even if they could be registered they would not be allowed to trade unregistered securities, or even registered esoteric securities like shoes and digital commodity units because the Self Regulatory Organizations are too permissioned for shares and bonds exclusively.
> if not every digital token does?
that's the point. there is either a way where a digital asset is exclusively a commodity, or there isn't at all and every corporate controlled unnatural commodity inherits the same regulatory framework that the SEC is trying to impose on digital assets and the entire trading ecosystem.
Sneakers would not meet the Howey Test: An investment contract exists if there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others."
The four parts of the Howey test, distilled down to plain English (and therefore losing a great deal of nuance in the process):
- It is an investment of money.
- The investment is in a common enterprise.
- There is an expectation of profits.
- The expectation of profits is solely from the efforts of the promoter or a third party.
Buying the latest Yeezy's is not a common enterprise. The fourth point is debatable.
The howey test doesn’t need all prongs satisfied and avoidance is based on probability only
The SEC and securities industry has enjoyed a symbiosis for 70 years, where things that blurred the lines didnt exist, were never imagined, or were never challenged. Challenging one challenges them all.
And yet buying a token is? What's the distinction here?
Maybe they just hired @butlerm which definitely knows what s/he's talking about and ... well here we are :)
Another incredibly important point is the $1 million net worth and $200k income based test for becoming an "accredited investor" is racist, classist, sexist, and evil. People should have the right to invest their money how they see fit. If you want people to sign some kind of disclosure, or some kind of term sheet that makes it very clear to a retail investor what they're getting into, fine. But the law as it exists is outrageously undemocratic.
In regards to the SEC, a system that was built for 1933 is not even relevant in a world where you can spin up a million new tokens in 10 seconds and deploy to 24/7 worldwide markets in 5 minutes from anywhere.
Keeping the 1933 SEC Act in tact in 2023 is like trying to keep Prohibition going even though it's raining whiskey from the sky.
You're spot on here. The vast majority of cryptocurrencies (modulo a bunch of shittokens) are better described as foreign currencies or commodities, and they should be regulated as such. Unfortunately for the SEC, that implies that they don't have jurisdiction, and that regulatory burden lies with the CFTC. And from my handful of years as a commodities trader, I would much rather have the CFTC involved than the SEC. The SEC is too inconsistent...institutionally they act like a primadonna that is interested in making headlines more than creating effective policy. The CFTC is all business. They're not perfect, but they are damn good at their job, and they are transparent about what they do and how they work, and they don't see enforcement action as a PR move, but rather as a way to ensure functioning markets and common public interest.
The Supreme Court seems to agree. The SEC has lost 4 out of their last 5 SC cases on cryptocurrency. All indicators from those decisions are pointing in the direction of cryptocurrency being regulated as a commodity, which is pointing towards the CFTC being the ones in charge.
This case makes the news because that is how the SEC works. They won't win this case, and they will cover up that fact by doing what they always do...create more news.
If crypto was limited to commodities traders we wouldn't have had nearly the number of problems we have had.
> The vast majority of cryptocurrencies (modulo a bunch of shittokens)
You can't eliminate a huge part of the sector that the exchanges are actively involved in trading.
This is an excellent opinion but it just doesn't line up with how securities and commodities are regulated.
The definition of a security is based on the Howey test, which has three prongs.
1. Investment of money (check).
2. In a common enterprise (check).
3. With the reasonable expectation of profits derived from the efforts of others (check).
The SEC published a full explanation of how to apply Howey to crypto assets. [1] If you disagree with certain aspects of this framework you're welcome to see Gary in court too.
The list of things you're comparing 'crypto' to are either not securities (where's the common enterprise in 'a bushel of corn') or be securities however they are specifically exempted from securities regulation in the law.
[1] https://www.sec.gov/corpfin/framework-investment-contract-an...
Could you explain this to me?
Are there any other examples of non-physical commodities?
Examples of non-physical commodities: music and apps.
Example of something that doesn’t exist at all: Carbon Offsets which are credits for negative production of GHG. Credits can be purchased on the market by companies to offset their own emissions for regulatory or other reasons.
But you don't buy "bitcoin". You buy an entry in a ledger that you are assigned "a bitcoin", so it is just a claim you trade.
I'm starting to feel, as a practical matter, they will never consider non-government backed crypto a currency regardless of what the rules on paper are. But maybe this has already happened and I'm ignorant, I don't follow this space closely.
It's a financial instrument. A commodity is used to make or do something. Crypto currencies are literally just money making devices. Sure they call themselves currencies, but that's not their primary purpose. They're investment vehicles. Even the limited ability to trade them for goods an services doesn't get around this fact. It's like being paid in stock. That's how they're marketed. Not as a way to buy takeout, but rather get rich.
The SEC filings do give the rationale for why specific coins are securities though.
Hard to summarize each filing though. Worth reading because, unfortunately (?), they make a good case.
This is a slightly incorrect interpretation. Not all financial instruments are securities. Financial instruments are legal contracts between an issuer and one or more holders + other parties. If you own any stock in a company, you don’t own part of that company… what you own is a portion of a legal contract that defines what rights you have as a shareholder and what obligations the issuer has.
Currency isn’t a commodity. It’s treated as a commodity because they shares characteristics - you can buy and sell them over FX market. It’s a bit of an oddity because its value isn’t solely based on supply and demand, but stability and existence of a central authority controlling its supply.
(Opinion) Bitcoin, on the other hand, is a virtual Commodity. It is not recognized as a currency. Similarly, gold is a commodity but not a currency, though it does have a place as a non-standard currency in ISO-4217.
Commodities can be hedged against (oil futures) through derivative products. Those are formalized through a legal contract.
Your notion of a financial instrument doesn’t cover the fact that it is the legal contract involving money that makes it an instrument.
But as others have pointed out that’s not why the SEC is suing.
You can't issue more gold. And to pre-empt your inevitable reply: the limited supply of bitcoins is not equivalent because Apple also has limited amounts of stock. Doesn't make it a commodity.
A crypto currency business however may be engaged in trading of crypto currencies which are negotiable financial instruments, and a stable coin that is a claim on a traditional currency is an example of that. A stable coin bears a direct relationship to a bank note. It is a claim on something else. It is not really an investment though, so not much of a security.
And then of course there are more creative negotiable financial instruments which are definitely securities. Options, derivatives, swaps, futures, and the like.
The Supreme Court has a broader definition of securities, that involves a promoted investment in a "common enterprise", but it is unclear that a commodity currency really is a common enterprise like a corporation is for example. It seems unlikely to me that Bitcoin as such would even meet that definition of a security. But other products offered by crypto currency exchanges might.