5 ms·

Sounds like the free lunch is over. Maybe my view is too simplistic, but Coinbase facilitates the sale of "assets" that the buyer expects to increase in value.

Sounds like the free lunch is over. Maybe my view is too simplistic, but Coinbase facilitates the sale of "assets" that the buyer expects to increase in value. By definition, that's a security, right?

traveler01 4y ago
Depends on what you consider a "Security". Are "Securities" meant to be used as currencies?
- lumost 4y ago
  Are virtual currencies actually being used as currencies? I've been long BTC for ~10 years, I've only made a few small novelty purchases through BTC. Based on any ads I've seen for crypto from coinbase, along with the tools they've built into their app - the primary use case for crypto appears to be as a security.
  - PretzelPirate 4y ago
    I pay for POAPs on Ethereum using Eth. There's no expectation of profit by owning one since anyone who actively participates in the event can get one, but they're fun collectibles. Because of POAPs, I use Eth as a currency all the time.
  - ascendantlogic 4y ago
    Bitcoin was originally meant to be used as a currency. Ethereum was meant to be the oil that powered the smart contract network. I guess the question is, what matters more: the intent by the creators or what the end users choose to do with it?
    - lumost 4y ago
      I have yet to see any coin be used in a manner that doesn’t devolve to a security. While there were many projects to do other things with crypto - they all still sell tokens on exchanges. I’d find the claim that crypto isn’t meant as a security more convincing if the crypto traded at 0 dollars.
  - nyolfen 4y ago
    i run a small retail shop that sells digital goods for btc. i bought a book with btc two months ago. more convincingly, it's widely used for remittances and as a store of value in countries with debased currencies -- this is a powerful tool for ordinary citizens in countries like venezuela, argentina etc to discipline central banks who would otherwise steal their savings.
    - mrguyorama 4y ago
      In japan, there exist a bunch of businesses that buy your pachinko prizes and give you cash. It's a standard thing that happens pretty much anywhere with pachinko machines. Yet it would be absurd to call those toys "A currency". A currency requires more usage than occasional barter.
      - deleted 4y ago
        [deleted]
      - nyolfen 4y ago
        what threshold would you find convincing? it performs all conventionally defined functions of money, it is legally recognized as money in some jurisdictions, it is useful as a store of value and medium of exchange. japanese yen might as well be 'toy' to me since i can't pay taxes with it. at this point i feel like i'm arguing about the utility of automobiles with an equestrian in 1920.
- this_user 4y ago
  Just because you claim something is a currency, doesn't make it one, especially if it doesn't even exhibit the properties of a currency. But the question of what is a "security" has been clearly answered in 1946: > For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise. A lot of these coins are attached to some such scheme by a 3rd party, therefore they should be considered securities. This may even apply to most NFTs. Source: https://supreme.justia.com/cases/federal/us/328/293/ https://supreme.justia.com/cases/federal/us/328/293/
  - sebzim4500 4y ago
    A lot of people buy houses thinking they will increase in value. Good to know they've all been doing securities fraud.
    - prottog 4y ago
      If there was a startup called Homebase that was in the business of serving as an exchange where people could trade houses, the SEC might be interested ;-)
      - sebzim4500 4y ago
        Last time this was discussed here people were suggesting that BTC was not a security but BCH was, despite being basically the same thing, and certainly both being exchanged on Coinbase.
    - arcticbull 4y ago
      You can google this stuff you know? Real estate does not fall under the securities umbrella. This is well established legal precedent, covered under Howey, the Securities Act, the Securities Exchange Act subsequent rulings. Real estate fails the Howey test because there is no common enterprise. https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/ https://www.compliancebuilding.com/2010/11/04/what-is-a-secu...
rasengan 4y ago
> Coinbase facilitates the sale of "assets" that the buyer expects to increase in value. By definition, that's a security, right? In terms of outdated US regulation based on some farm land, yes.
- maxfurman 4y ago
  Whether or not the regulation is outdated, it is the law of the land in the US at the moment and is relevant to enforcement actions by the SEC. This definition of security will determine Coinbase's success or failure in court.
- WrtCdEvrydy 4y ago
  I'm surprised homes are not qualified as "securities" at this point. Home prices must go up :D
ericpauley 4y ago
Yes and no. Gold isn’t a security, for instance. Unfortunately (for coinbase) ICOs and related grifts pretty clearly meet both the spirit and the letter of the SEC’s definition.
- burkaman 4y ago
  The other part of the definition is that it can be easily bought and sold on an exchange. I think if there were an exchange for physical gold then it would be considered a security.
  - sebzim4500 4y ago
    > I think if there were an exchange for physical gold then it would be considered a security. I don't think that if you were to make an exchange that made it easy to trade physical gold (rather than deriviatives) the SEC would suddenly determine that gold was a security.
  - prottog 4y ago
    Exchange-traded commodity futures (including those for physical delivery of 100 troy ounces of gold) have existed for a long time and are regulated by the CFTC.
    - burkaman 4y ago
      Right, and those are securities, but gold itself is not a security because it's relatively difficult to trade.
      - deleted 4y ago
        [deleted]
  - esperent 4y ago
    There's loads of trading platforms that allow you to buy and sell gold. https://tradingplatforms.com/commodity/gold-trading/ https://tradingplatforms.com/commodity/gold-trading/
ascendantlogic 4y ago
This is the crux of the endless argument. People speculate on currencies via Forex, are those securities? Is oil a security? People buy into oil, gold, etc hoping to sell later for a profit. Both the CFTC and SEC have claimed they have purview over crypto and there has been absolutely no clarity from lawmakers on it.
- adgjlsfhk1 4y ago
  the real answer is that the CFTC should just be abolished and folded into the SEC. the only reason crypto people want to be regulated byt he CFTC is that they are way less competent at catching fraud than the SEC.
  - elliekelly 4y ago
    This is absolutely the answer. The NFA/CFTC have been having a quiet turf war with the SEC for a decade now in an attempt to thwart the obvious and hopefully inevitable solution you’ve suggested.
arcticbull 4y ago
The definition of a security is found in the application of the Howey test. The SEC has a nice long explanation of how you apply Howey to crypto. Basically every token is a security. Always has been. With the possible exception of Bitcoin due to the way it was initially distributed. [1] [1] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf
- deadbolt 4y ago
  What was unique about the initial distribution of Bitcoin when compared to other cryptocurrencies?
  - arcticbull 4y ago
    No pre-mine, no pre-sale, no original ledger. The software was written, and the 'satoshi wallet' was actually open mined.
  - WrtCdEvrydy 4y ago
    no pre-mine I believe.
- j0hnyl 4y ago
  How can it be proved that people are buying tokens like Eth/Solana because they expect those tokens to go up in value? Plenty of people are buying those tokens so that they can participate in their respective ecosystems as developers.
  - elliekelly 4y ago
    And some Howey-in-the-Hills investors may have just wanted to eat their oranges. First and foremost they’ll look to what was said in selling the tokens: “join a crypto community!” vs “start your crypto portfolio”.
    - j0hnyl 4y ago
      You have a point however, I don't think anyone is buying Eth now based on the initial ICO messaging.
jcranmer 4y ago
The Howey test requires that a security be (1) an investment of money (2) in a common enterprise (3) with the expectation of profit (4) to be derived from the efforts of others. Cryptocurrencies very clearly meet (1) and (2). Many tokens are likely to meet (3), but it's not universal. But (4) is where you have the most room to argue. I don't know what Coinbase offers for sale. But I'm certain that least some of the tokens it supports are going to be defined as securities under the Howey test. Hell, if Coinbase offers the ability to use your tokens for staking, I'm pretty sure that alone qualifies as a security, even if the token itself isn't necessarily a security. (Coinbase disagrees that staking constitutes a security, but their reasoning is extremely motivated and I do not find it persuasive.)
- latchkey 4y ago
  > I don't know what Coinbase offers for sale. https://www.coinbase.com/price/poocoin https://www.coinbase.com/price/poocoin
- johnrob 4y ago
  If you want to transfer the asset to another party (the main purpose of crypto currency), that requires effort from the community of miners. Would that satisfy the condition?
- SAI_Peregrinus 4y ago
  Coinbase offers a "staking service" where they run the node to perform validations (4) using your staked currency (1) on the Ethereum blockchain (2) and promise to give you a share of any profits (3).

traveler01 4y ago

Depends on what you consider a "Security". Are "Securities" meant to be used as currencies?

lumost 4y ago
Are virtual currencies actually being used as currencies? I've been long BTC for ~10 years, I've only made a few small novelty purchases through BTC. Based on any ads I've seen for crypto from coinbase, along with the tools they've built into their app - the primary use case for crypto appears to be as a security.
- PretzelPirate 4y ago
  I pay for POAPs on Ethereum using Eth. There's no expectation of profit by owning one since anyone who actively participates in the event can get one, but they're fun collectibles. Because of POAPs, I use Eth as a currency all the time.
- ascendantlogic 4y ago
  Bitcoin was originally meant to be used as a currency. Ethereum was meant to be the oil that powered the smart contract network. I guess the question is, what matters more: the intent by the creators or what the end users choose to do with it?
  - lumost 4y ago
    I have yet to see any coin be used in a manner that doesn’t devolve to a security. While there were many projects to do other things with crypto - they all still sell tokens on exchanges. I’d find the claim that crypto isn’t meant as a security more convincing if the crypto traded at 0 dollars.
- nyolfen 4y ago
  i run a small retail shop that sells digital goods for btc. i bought a book with btc two months ago. more convincingly, it's widely used for remittances and as a store of value in countries with debased currencies -- this is a powerful tool for ordinary citizens in countries like venezuela, argentina etc to discipline central banks who would otherwise steal their savings.
  - mrguyorama 4y ago
    In japan, there exist a bunch of businesses that buy your pachinko prizes and give you cash. It's a standard thing that happens pretty much anywhere with pachinko machines. Yet it would be absurd to call those toys "A currency". A currency requires more usage than occasional barter.
    - deleted 4y ago
      [deleted]
    - nyolfen 4y ago
      what threshold would you find convincing? it performs all conventionally defined functions of money, it is legally recognized as money in some jurisdictions, it is useful as a store of value and medium of exchange. japanese yen might as well be 'toy' to me since i can't pay taxes with it. at this point i feel like i'm arguing about the utility of automobiles with an equestrian in 1920.
this_user 4y ago
Just because you claim something is a currency, doesn't make it one, especially if it doesn't even exhibit the properties of a currency. But the question of what is a "security" has been clearly answered in 1946: > For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise. A lot of these coins are attached to some such scheme by a 3rd party, therefore they should be considered securities. This may even apply to most NFTs. Source: https://supreme.justia.com/cases/federal/us/328/293/ https://supreme.justia.com/cases/federal/us/328/293/
- sebzim4500 4y ago
  A lot of people buy houses thinking they will increase in value. Good to know they've all been doing securities fraud.
  - prottog 4y ago
    If there was a startup called Homebase that was in the business of serving as an exchange where people could trade houses, the SEC might be interested ;-)
    - sebzim4500 4y ago
      Last time this was discussed here people were suggesting that BTC was not a security but BCH was, despite being basically the same thing, and certainly both being exchanged on Coinbase.
  - arcticbull 4y ago
    You can google this stuff you know? Real estate does not fall under the securities umbrella. This is well established legal precedent, covered under Howey, the Securities Act, the Securities Exchange Act subsequent rulings. Real estate fails the Howey test because there is no common enterprise. https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/ https://www.compliancebuilding.com/2010/11/04/what-is-a-secu...

rasengan 4y ago

> Coinbase facilitates the sale of "assets" that the buyer expects to increase in value. By definition, that's a security, right? In terms of outdated US regulation based on some farm land, yes.

maxfurman 4y ago
Whether or not the regulation is outdated, it is the law of the land in the US at the moment and is relevant to enforcement actions by the SEC. This definition of security will determine Coinbase's success or failure in court.
WrtCdEvrydy 4y ago
I'm surprised homes are not qualified as "securities" at this point. Home prices must go up :D

ericpauley 4y ago

Yes and no. Gold isn’t a security, for instance. Unfortunately (for coinbase) ICOs and related grifts pretty clearly meet both the spirit and the letter of the SEC’s definition.

burkaman 4y ago
The other part of the definition is that it can be easily bought and sold on an exchange. I think if there were an exchange for physical gold then it would be considered a security.
- sebzim4500 4y ago
  > I think if there were an exchange for physical gold then it would be considered a security. I don't think that if you were to make an exchange that made it easy to trade physical gold (rather than deriviatives) the SEC would suddenly determine that gold was a security.
- prottog 4y ago
  Exchange-traded commodity futures (including those for physical delivery of 100 troy ounces of gold) have existed for a long time and are regulated by the CFTC.
  - burkaman 4y ago
    Right, and those are securities, but gold itself is not a security because it's relatively difficult to trade.
    - deleted 4y ago
      [deleted]
- esperent 4y ago
  There's loads of trading platforms that allow you to buy and sell gold. https://tradingplatforms.com/commodity/gold-trading/ https://tradingplatforms.com/commodity/gold-trading/

ascendantlogic 4y ago

This is the crux of the endless argument. People speculate on currencies via Forex, are those securities? Is oil a security? People buy into oil, gold, etc hoping to sell later for a profit. Both the CFTC and SEC have claimed they have purview over crypto and there has been absolutely no clarity from lawmakers on it.

adgjlsfhk1 4y ago
the real answer is that the CFTC should just be abolished and folded into the SEC. the only reason crypto people want to be regulated byt he CFTC is that they are way less competent at catching fraud than the SEC.
- elliekelly 4y ago
  This is absolutely the answer. The NFA/CFTC have been having a quiet turf war with the SEC for a decade now in an attempt to thwart the obvious and hopefully inevitable solution you’ve suggested.

arcticbull 4y ago

The definition of a security is found in the application of the Howey test. The SEC has a nice long explanation of how you apply Howey to crypto. Basically every token is a security. Always has been. With the possible exception of Bitcoin due to the way it was initially distributed. [1] [1] https://www.sec.gov/files/dlt-framework.pdf https://www.sec.gov/files/dlt-framework.pdf

deadbolt 4y ago
What was unique about the initial distribution of Bitcoin when compared to other cryptocurrencies?
- arcticbull 4y ago
  No pre-mine, no pre-sale, no original ledger. The software was written, and the 'satoshi wallet' was actually open mined.
- WrtCdEvrydy 4y ago
  no pre-mine I believe.
j0hnyl 4y ago
How can it be proved that people are buying tokens like Eth/Solana because they expect those tokens to go up in value? Plenty of people are buying those tokens so that they can participate in their respective ecosystems as developers.
- elliekelly 4y ago
  And some Howey-in-the-Hills investors may have just wanted to eat their oranges. First and foremost they’ll look to what was said in selling the tokens: “join a crypto community!” vs “start your crypto portfolio”.
  - j0hnyl 4y ago
    You have a point however, I don't think anyone is buying Eth now based on the initial ICO messaging.

jcranmer 4y ago

The Howey test requires that a security be (1) an investment of money (2) in a common enterprise (3) with the expectation of profit (4) to be derived from the efforts of others. Cryptocurrencies very clearly meet (1) and (2). Many tokens are likely to meet (3), but it's not universal. But (4) is where you have the most room to argue. I don't know what Coinbase offers for sale. But I'm certain that least some of the tokens it supports are going to be defined as securities under the Howey test. Hell, if Coinbase offers the ability to use your tokens for staking, I'm pretty sure that alone qualifies as a security, even if the token itself isn't necessarily a security. (Coinbase disagrees that staking constitutes a security, but their reasoning is extremely motivated and I do not find it persuasive.)

latchkey 4y ago
> I don't know what Coinbase offers for sale. https://www.coinbase.com/price/poocoin https://www.coinbase.com/price/poocoin
johnrob 4y ago
If you want to transfer the asset to another party (the main purpose of crypto currency), that requires effort from the community of miners. Would that satisfy the condition?
SAI_Peregrinus 4y ago
Coinbase offers a "staking service" where they run the node to perform validations (4) using your staked currency (1) on the Ethereum blockchain (2) and promise to give you a share of any profits (3).