8 ms·

what's stupid is that quotes like this, not actual substance of what their business practices are, are the only way the SEC can establish what is and isn't a "s

what's stupid is that quotes like this, not actual substance of what their business practices are, are the only way the SEC can establish what is and isn't a "security." there is no real truth or objective test and the SEC has offered no meaningful guidance. so they just determine this based on subjective emails the CEO sent once.

CPLX 3y ago
There is like 100 years of detailed precedent and caselaw around what a security is. The crypto scam artist just don't like it.
- mgamache 3y ago
  And yet there is no clear definition offered by the SEC. https://www.smitheilers.com/blog/coinbase-sues-securities-and-exchange-commission-following-issuance-of-wells-notice#:~:text=In%20its%20response%20to%20the,on%20digital%20assets%20on%20the https://www.smitheilers.com/blog/coinbase-sues-securities-an...
  - CPLX 3y ago
    https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an...
    - mgamache 3y ago
      Coinbase and the Howey test https://www.coinbase.com/blog/coinbases-staking-services-are-not-securities-and-heres-why https://www.coinbase.com/blog/coinbases-staking-services-are...
      - rcme 3y ago
        Coinbase's argument hinges upon a blockchain not being a "common enterprise." The rest of their arguments are even weaker.
      - khuey 3y ago
        According to a court of law or according to Coinbase?
      - quickthrowman 3y ago
        More accurately, Coinbase is claiming their staking service does not count as a security under the Howey Test. A judge or panel of judges will be the ones making the actual determination, Coinbase’s claim has yet to be tested in court.
      - jcranmer 3y ago
        Coinbase is engaged in motivated reasoning here; they're trying to find every reason they can to not label their services as securities. I'd have to look up precedents to find more detailed guidance as to particular prongs, but offhand: 1. I really need to look up case law to decide if Coinbase is right on the investment of money part here, and I suspect in part it relies on technically-detailed arguments I have no knowledge of. But if your money is locked up, it's almost certainly meets this prong, and my understanding is that staking does lock your assets for a time. 2. The not-"common enterprise" argument here boils down to "it's all down by computers, so how can it be a common enterprise?" Which feels like the sort of gotcha legal loophole that plays out poorly in courts, although I will admit that I don't know the case law in detail to evaluate this claim well. 3. Expectation of profit is derived in large part from how it's advertised, which... yeah, this is going to point towards security. I should note in particular that in trying to describe why Coinbase's staking service doesn't meet this prong sounds suspiciously like the original scheme in the case that provided the Howey test. This alone should cast significant doubt on the entire analysis. 4. The "efforts of others" again relies on the "it's just computers, so obviously it can't count, right? ... right?" style of argument as prong #2, but even less convincingly.
      - CPLX 3y ago
        The only way this even tries to make sense is by creating the idea that the obviousness of it being a security (you're lending something of value to an enterprise in hopes of generating return) doesn't count, because it's a computer or something. Like if the exact same thing was accomplished by people it's obviously a security but since it's done by code (which was magically and immaculately conceived, presumably) then it's different somehow. It's not different. Coinbase wants people to give them money, have them do [complicated thing] then give them a return on that money.
      - imtringued 3y ago
        They compare staking to mining. Cryptocurrency mining is a business activity that fulfills the last three criteria but mining on its own is not a security. The only confusion is whether the staked cryptocurrency counts as an investment of money.
- ipaddr 3y ago
  What case law do you think this falls under?
  - CPLX 3y ago
    Going out on a limb here but my assumption is that the specific one probably relies on the detailed citations of law and statute contained in the 136 page complaint written and filed by government attorneys.
jxramos 3y ago
I love that, at most it establishes that they think that they engage in securities dealings but what if they're actually mistaken in that regard or merely speak that way as a shorthand for recognizing that others, namely the SEC itself, thinks of them as securities dealers or whatever. Leaning on their self identification alone does sound weak when we surface these points out in the open. We have no objective test like you say then why are they even talking about this stuff. Do the hard work to define and wrestle with the necessary concepts. Sounds like this is all cutting edge stuff though.
- jxramos 3y ago
  I just had a funny thought experiment along this self identification route. "I identify as a trillionaire" and finding that claim triggering the IRS to go hunt me down to find all those taxes I never paid as a trillionaire.
deleted 3y ago
[deleted]
jcranmer 3y ago
The definition of "security" is pretty objective (Howey test), but the answer it produces tends not to be liked by people in the crypto space, so they argue hard about why it's not a definition of security. What quotes like these do is make it trivial to prove the mens rea (intent) requirements, and put a lie to claims that they didn't know it was a security or that their interpretation as not-a-security was reasonable.
- dontreact 3y ago
  Putting this here in case it's useful. Please correct if it's wrong. What is the Howey test for whether something is a security? """ The Howey Test asks whether a transaction constitutes an "investment contract," which is a type of security. If it is an investment contract, it must satisfy four criteria: It is an investment of money. The investment is in a common enterprise. There is an expectation of profits from the investment. Any profit comes from the efforts of a promoter or third party. If the answer to all these questions is "yes," the transaction is likely an investment contract and, therefore, a security. However, please note that this is a simplified explanation. The actual determination can be complex and might require a detailed analysis by legal professionals. """ To me it DEFINITELY sounds like crypto is a security, but it seems like it mostly hinges on whether people expect to make a profit by investing. Which some people do and some people don't. But most people do right?
  - itake 3y ago
    who is buying crypto and not expecting to make a profit from it?
    - rcme 3y ago
      You could be buying it to interact with a smart contract.
      - vkou 3y ago
        In theory, yes. In practice, most of the interaction with smart contracts consists of locking up your money in one and expecting yield.
deleted 3y ago
[deleted]
JumpCrisscross 3y ago
> no real truth or objective test and the SEC has offered no meaningful guidance The securities allegations revolve around BNB's ICO. Binance is being sued by the CFTC in respect of its Bitcoin and Ethereum trading.
preseinger 3y ago
it's pretty clear that almost every cryptocurrency/coin classifies as a security anyone arguing otherwise almost certainly has a dog in the hunt
unyttigfjelltol 3y ago
The quote represents the most knowledgeable person in the defendant organization about the regulations, tacitly agreeing with the position on crypto stated by the head of the SEC. "Specifically, [the SEC head] claimed that 'everything but bitcoin' could be considered a security in the world of cryptocurrency, while bitcoin could be considered a commodity due to its stature and resolutely-decentralized nature." [1] The defendant entity could establish a bona fide defense, shut operations, or face the consequences. While bare crypto may or may not require "quotes like this" to allocated, crypto pioneers made it relatively trivial to determine they are acting outside the law, by issuing interest bearing crypto accounts and tying payments to the prospects of entities.[2] [1] https://www.nasdaq.com/articles/secs-gensler-warns-crypto-investors-but-differentiates-bitcoin https://www.nasdaq.com/articles/secs-gensler-warns-crypto-in... [2] https://www.sec.gov/oiea/investor-alerts-and-bulletins/investor-bulletin-crypto-asset-interest-bearing-accounts https://www.sec.gov/oiea/investor-alerts-and-bulletins/inves...

CPLX 3y ago

There is like 100 years of detailed precedent and caselaw around what a security is. The crypto scam artist just don't like it.

mgamache 3y ago
And yet there is no clear definition offered by the SEC. https://www.smitheilers.com/blog/coinbase-sues-securities-and-exchange-commission-following-issuance-of-wells-notice#:~:text=In%20its%20response%20to%20the,on%20digital%20assets%20on%20the https://www.smitheilers.com/blog/coinbase-sues-securities-an...
- CPLX 3y ago
  https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an...
  - mgamache 3y ago
    Coinbase and the Howey test https://www.coinbase.com/blog/coinbases-staking-services-are-not-securities-and-heres-why https://www.coinbase.com/blog/coinbases-staking-services-are...
    - rcme 3y ago
      Coinbase's argument hinges upon a blockchain not being a "common enterprise." The rest of their arguments are even weaker.
    - khuey 3y ago
      According to a court of law or according to Coinbase?
    - quickthrowman 3y ago
      More accurately, Coinbase is claiming their staking service does not count as a security under the Howey Test. A judge or panel of judges will be the ones making the actual determination, Coinbase’s claim has yet to be tested in court.
    - jcranmer 3y ago
      Coinbase is engaged in motivated reasoning here; they're trying to find every reason they can to not label their services as securities. I'd have to look up precedents to find more detailed guidance as to particular prongs, but offhand: 1. I really need to look up case law to decide if Coinbase is right on the investment of money part here, and I suspect in part it relies on technically-detailed arguments I have no knowledge of. But if your money is locked up, it's almost certainly meets this prong, and my understanding is that staking does lock your assets for a time. 2. The not-"common enterprise" argument here boils down to "it's all down by computers, so how can it be a common enterprise?" Which feels like the sort of gotcha legal loophole that plays out poorly in courts, although I will admit that I don't know the case law in detail to evaluate this claim well. 3. Expectation of profit is derived in large part from how it's advertised, which... yeah, this is going to point towards security. I should note in particular that in trying to describe why Coinbase's staking service doesn't meet this prong sounds suspiciously like the original scheme in the case that provided the Howey test. This alone should cast significant doubt on the entire analysis. 4. The "efforts of others" again relies on the "it's just computers, so obviously it can't count, right? ... right?" style of argument as prong #2, but even less convincingly.
    - CPLX 3y ago
      The only way this even tries to make sense is by creating the idea that the obviousness of it being a security (you're lending something of value to an enterprise in hopes of generating return) doesn't count, because it's a computer or something. Like if the exact same thing was accomplished by people it's obviously a security but since it's done by code (which was magically and immaculately conceived, presumably) then it's different somehow. It's not different. Coinbase wants people to give them money, have them do [complicated thing] then give them a return on that money.
    - imtringued 3y ago
      They compare staking to mining. Cryptocurrency mining is a business activity that fulfills the last three criteria but mining on its own is not a security. The only confusion is whether the staked cryptocurrency counts as an investment of money.
ipaddr 3y ago
What case law do you think this falls under?
- CPLX 3y ago
  Going out on a limb here but my assumption is that the specific one probably relies on the detailed citations of law and statute contained in the 136 page complaint written and filed by government attorneys.

jxramos 3y ago

I love that, at most it establishes that they think that they engage in securities dealings but what if they're actually mistaken in that regard or merely speak that way as a shorthand for recognizing that others, namely the SEC itself, thinks of them as securities dealers or whatever. Leaning on their self identification alone does sound weak when we surface these points out in the open. We have no objective test like you say then why are they even talking about this stuff. Do the hard work to define and wrestle with the necessary concepts. Sounds like this is all cutting edge stuff though.

jxramos 3y ago
I just had a funny thought experiment along this self identification route. "I identify as a trillionaire" and finding that claim triggering the IRS to go hunt me down to find all those taxes I never paid as a trillionaire.

deleted 3y ago

[deleted]

jcranmer 3y ago

The definition of "security" is pretty objective (Howey test), but the answer it produces tends not to be liked by people in the crypto space, so they argue hard about why it's not a definition of security. What quotes like these do is make it trivial to prove the mens rea (intent) requirements, and put a lie to claims that they didn't know it was a security or that their interpretation as not-a-security was reasonable.

dontreact 3y ago
Putting this here in case it's useful. Please correct if it's wrong. What is the Howey test for whether something is a security? """ The Howey Test asks whether a transaction constitutes an "investment contract," which is a type of security. If it is an investment contract, it must satisfy four criteria: It is an investment of money. The investment is in a common enterprise. There is an expectation of profits from the investment. Any profit comes from the efforts of a promoter or third party. If the answer to all these questions is "yes," the transaction is likely an investment contract and, therefore, a security. However, please note that this is a simplified explanation. The actual determination can be complex and might require a detailed analysis by legal professionals. """ To me it DEFINITELY sounds like crypto is a security, but it seems like it mostly hinges on whether people expect to make a profit by investing. Which some people do and some people don't. But most people do right?
- itake 3y ago
  who is buying crypto and not expecting to make a profit from it?
  - rcme 3y ago
    You could be buying it to interact with a smart contract.
    - vkou 3y ago
      In theory, yes. In practice, most of the interaction with smart contracts consists of locking up your money in one and expecting yield.

deleted 3y ago

[deleted]

JumpCrisscross 3y ago

> no real truth or objective test and the SEC has offered no meaningful guidance The securities allegations revolve around BNB's ICO. Binance is being sued by the CFTC in respect of its Bitcoin and Ethereum trading.

preseinger 3y ago

it's pretty clear that almost every cryptocurrency/coin classifies as a security anyone arguing otherwise almost certainly has a dog in the hunt

unyttigfjelltol 3y ago

The quote represents the most knowledgeable person in the defendant organization about the regulations, tacitly agreeing with the position on crypto stated by the head of the SEC. "Specifically, [the SEC head] claimed that 'everything but bitcoin' could be considered a security in the world of cryptocurrency, while bitcoin could be considered a commodity due to its stature and resolutely-decentralized nature." [1] The defendant entity could establish a bona fide defense, shut operations, or face the consequences. While bare crypto may or may not require "quotes like this" to allocated, crypto pioneers made it relatively trivial to determine they are acting outside the law, by issuing interest bearing crypto accounts and tying payments to the prospects of entities.[2] [1] https://www.nasdaq.com/articles/secs-gensler-warns-crypto-investors-but-differentiates-bitcoin https://www.nasdaq.com/articles/secs-gensler-warns-crypto-in... [2] https://www.sec.gov/oiea/investor-alerts-and-bulletins/investor-bulletin-crypto-asset-interest-bearing-accounts https://www.sec.gov/oiea/investor-alerts-and-bulletins/inves...