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If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like

If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like Bitcoin is no ordinary security nor a financial instrument. It is not a claim on something else, even less so than a traditional bank note. It is more like a commodity. Since when is "aluminum" a security? 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.

dforrestwilson 3y ago
Getting sued to fall under govt regulation - and therefore gaining imprimatur - seems like exactly what these exchanges should want. We never regulated Beanie Babies.
- mmastrac 3y ago
  I don't think Beanie Babies collectors tended towards the libertarian part of the axis, however.
- strangescript 3y ago
  I mean, that makes some assumptions about the overall outcomes here.
- bannedbybros 3y ago
  [dead]
eli 3y ago
The SEC didn't sue them over Bitcoin. 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.
- EscapeFromNY 3y ago
  I don't think there's any question who has jurisdiction. The SEC and CFTC have both agreed it's the CFTC: https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-the-sec-chair-will-call-a-commodity https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th... https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ethereum-claims-only-bitcoin-is-a-commodity/ https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ether...
  - Karunamon 3y ago
    The problem is this is not formalized. It needs to be a law (legislative, not administrative), ideally with the individual tokens named. Relying on the goodwill of regulators is unwise.
ethanbond 3y ago
I think the real crux of the issue is that these instruments were designed to be confusing to regulate and, alas, they're confusing to regulate. The error was in thinking that a confused regulator says "I don't understand what's going on here, carry on and rest easy" rather than what actually happens: "I don't understand what's going on here, and until I do -- on my schedule, not yours -- your business is always at risk of falling on the wrong side of my reasoning."
- dcow 3y ago
  I don't think the pure commodity coins (layer 1 networks like btc, xch, etc) are confusing at all. You do work and get rewarded with a digital commodity. It’s exactly like digging up gold, or tapping a tree for maple syrup. 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, but if you squint it kinda looks like one. Regardless, it’s not crypto’s fault that regulators are having a hard time understanding it. That’s the regulators’ and lawmakers' problem. (So elect people into power who are your peers, and who aren't 70 years old and have no hope of anything more than a cursory understanding world from the last 20 years.) But, 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.
  - lottin 3y ago
    But what on earth is a digital commodity? I think the whole concept of digital commodity is nonsensical. 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".
    - deleted 3y ago
      [deleted]
mrkramer 3y ago
Bitcoin is a commodity [0] under the US Commodity Exchange Act (CEA) and it is regulated by the US Commodity Futures Trading Commission (CFTC). [0] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi...
- sjtgraham 3y ago
  That could change in a second if another agency like the SEC decides it's something else. There is nothing to say that two agencies couldn't hold conflicting positions over what BTC is or isn't.
- arcticbull 3y ago
  Someone holds an opinion that this is the case, it has not been resolved as a matter of law yet. It could be, in my opinion, a commodity.
- tiahura 3y ago
  EPA v. West Virginia "The agency instead must point to 'clear congressional authorization' for the power it claims."
Demmme 3y ago
I read them and concluded that Bitcoin fits currency very well. 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
- esonoi 3y ago
  Gold is not a currency, it is a commodity that is similar enough to a currency (meaning it can substitute as a currency). ISO 4217 includes precious metals that it explicitly states are not currencies. 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.
  - Demmme 3y ago
    And iso 42... Can't be adjusted for Bitcoin?
m00dy 3y ago
No one said Bitcoin is a security...The issue is that howey test might be too old to work on cryptos.
- thisgoesnowhere 3y ago
  What is too old about it?
  - m00dy 3y ago
    So, do you think everything is crystal clear ?
    - thisgoesnowhere 3y ago
      Yes
      - m00dy 3y ago
        ok then why bitcoin is not a security but Solana is a security ?
deleted 3y ago
[deleted]
Retric 3y ago
Binance was up for “money laundering and tax offenses” issues because they deal with large sums of fiat money independent from what’s being sold. Replace Bitcoin with physical artwork and you can still run into issues here. 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.
dsg42 3y ago
The only question here is whether cryptocurrency is a security or a commodity. Securities fall under regulation by the SEC (SECURITIES and Exchange Commission). Commodities are regulated by the CFTC (COMMODITIES Future Trading Commission). SEC Chair Gensler agrees that Bitcoin is a commodity, but thinks everything else is a security.[1] Securities are much more tightly regulated than commodities. The SEC is making it clear with these complaints that they believe certain cryptocurrencies are securities. 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-the-sec-chair-will-call-a-commodity https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...
- dcow 3y ago
  Curious: is "bitcoin" being used by the SEC as a general term to mean "all cryptos that fundamentally employ a work-based consensus algorithm", or "pure" cryptos or whatever? Or is it not yet clear to the SEC that there are more instances of Nakamoto consensus networks out there and not everything other than BTC is a security? 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.
  - potatototoo99 3y ago
    Of course not everything other than bitcoin is a security. My private blockchain no one knows about is not a security. It's not a universal law of the universe. 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.
    - dcow 3y ago
      I’m just trying to understand the context. I hope it is as you say and it would be my baseline assumption that it is as well. But it’s not unquestionably obvious given history and what relatively little context is present in this thread. The SEC used to think all crypto is a security to the point where honest miners are instructed to declare blockchain rewards as income (I have, and TurboTax even asks you if you acquired crypto in the last year with no nuance as to how you acquired it or which one you acquired). It may be obvious to you and me but my question was more about how far the SEC’s understanding has evolved.
jksmith 3y ago
There was no ICO, it has an immutable fixed supply, it's not in perpetual startup mode, and not centrally controlled operationally and can't be bought back.
spaceman_2020 3y ago
Bitcoin might be classified as a commodity, but nearly every other crypto out there, especially anything with a premine or any sort of revenue sharing, is pretty clear cut a security.
- whimsicalism 3y ago
  I disagree that the line between 'premine' and what happened with Bitcoin is actually all that clear. 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.
tempsy 3y ago
They aren't claiming Bitcoin is a security. In fact they've made it pretty clear Bitcoin and maybe ETH are not. They are claiming a bunch of the newer cryptos like SOL are, though.
jcranmer 3y ago
SEC isn't suing Coinbase over Bitcoin. They're suing under two things: 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!
- mrcode007 3y ago
  Very good points. People often go a long way to argue against the Howey test. The best example is Howey Co case. If someone is a lawyer dealing in securities and acting as an advisor I would have expected them to be familiar with the law. Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced. https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
  - whimsicalism 3y ago
    It is not obvious a priori how regulators will treat tokens or which ones will be permissible.
    - qeternity 3y ago
      It was obvious to a lot of people who were wondering what was taking regulators so long.
darksaints 3y ago
So many of these HN conversations devolve into shit bonanzas because so many people approach this topic as if it is a "Regulation vs No Regulation" topic, instead of the more appropriate "Bad Regulation vs Good Regulation" topic, or even more appropriately the "Which agency should have jurisdiction" topic. And it is a shame, because cryptocurrency has largely outgrown the anarchocapitalist utopian's mindshare, and the people involved that actually want no regulation are an extreme minority now. 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.
- anonymouskimmer 3y ago
  > And from my handful of years as a commodities trader 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.
deleted 3y ago
[deleted]
0xbadcafebee 3y ago
pretty much everything can be a security, and everything is securities fraud. ask Matt Levine if you don't believe me.
paulddraper 3y ago
> Crypto currency is a commodity Could you explain this to me? Are there any other examples of non-physical commodities?
- shermanyo 3y ago
  Is music an example of a non-physical commodity?
- esonoi 3y ago
  Crypto is more a commodity than currencies, because unlike currency, crypto is subject to the same speculative supply and demand forces as conventional 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.
deleted 3y ago
[deleted]
throwaway7356 3y ago
> Since when is "aluminum" a security? 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.
Consultant32452 3y ago
Are there any crypto tokens not backed by a state that the SEC has officially and clearly declared a currency and not a commodity? 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.
jonathankoren 3y ago
>If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like Bitcoin is no ordinary security nor a financial instrument. It is not a claim on something else, even less so than a traditional bank note. It is more like a commodity. Since when is "aluminum" a security? 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.
foobarbazetc 3y ago
It’s kind of interesting that the “commonwealth” countries (AU/NZ/GB/CA) have different classifications of crypto (AU/NZ treat them as property, CA as securities, GB varies depending on the thing). 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.
esonoi 3y ago
I’m not a lawyer but work in the industry. 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.
MagicMoonlight 3y ago
Gold is a commodity because it exists in the real world and you make it. Bitcoins aren't a commodity because a random person or entity has created it with the intention of selling it to people as a financial instrument. 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.

dforrestwilson 3y ago

Getting sued to fall under govt regulation - and therefore gaining imprimatur - seems like exactly what these exchanges should want. We never regulated Beanie Babies.

mmastrac 3y ago
I don't think Beanie Babies collectors tended towards the libertarian part of the axis, however.
strangescript 3y ago
I mean, that makes some assumptions about the overall outcomes here.
bannedbybros 3y ago
[dead]

eli 3y ago

The SEC didn't sue them over Bitcoin. 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.

EscapeFromNY 3y ago
I don't think there's any question who has jurisdiction. The SEC and CFTC have both agreed it's the CFTC: https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-the-sec-chair-will-call-a-commodity https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th... https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ethereum-claims-only-bitcoin-is-a-commodity/ https://cryptoslate.com/cftc-chair-rostin-behnam-snubs-ether...
- Karunamon 3y ago
  The problem is this is not formalized. It needs to be a law (legislative, not administrative), ideally with the individual tokens named. Relying on the goodwill of regulators is unwise.

ethanbond 3y ago

I think the real crux of the issue is that these instruments were designed to be confusing to regulate and, alas, they're confusing to regulate. The error was in thinking that a confused regulator says "I don't understand what's going on here, carry on and rest easy" rather than what actually happens: "I don't understand what's going on here, and until I do -- on my schedule, not yours -- your business is always at risk of falling on the wrong side of my reasoning."

dcow 3y ago
I don't think the pure commodity coins (layer 1 networks like btc, xch, etc) are confusing at all. You do work and get rewarded with a digital commodity. It’s exactly like digging up gold, or tapping a tree for maple syrup. 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, but if you squint it kinda looks like one. Regardless, it’s not crypto’s fault that regulators are having a hard time understanding it. That’s the regulators’ and lawmakers' problem. (So elect people into power who are your peers, and who aren't 70 years old and have no hope of anything more than a cursory understanding world from the last 20 years.) But, 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.
- lottin 3y ago
  But what on earth is a digital commodity? I think the whole concept of digital commodity is nonsensical. 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".
  - deleted 3y ago
    [deleted]

mrkramer 3y ago

Bitcoin is a commodity [0] under the US Commodity Exchange Act (CEA) and it is regulated by the US Commodity Futures Trading Commission (CFTC). [0] https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf https://www.cftc.gov/sites/default/files/2019-12/oceo_bitcoi...

sjtgraham 3y ago
That could change in a second if another agency like the SEC decides it's something else. There is nothing to say that two agencies couldn't hold conflicting positions over what BTC is or isn't.
arcticbull 3y ago
Someone holds an opinion that this is the case, it has not been resolved as a matter of law yet. It could be, in my opinion, a commodity.
tiahura 3y ago
EPA v. West Virginia "The agency instead must point to 'clear congressional authorization' for the power it claims."

Demmme 3y ago

I read them and concluded that Bitcoin fits currency very well. 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

esonoi 3y ago
Gold is not a currency, it is a commodity that is similar enough to a currency (meaning it can substitute as a currency). ISO 4217 includes precious metals that it explicitly states are not currencies. 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.
- Demmme 3y ago
  And iso 42... Can't be adjusted for Bitcoin?

m00dy 3y ago

No one said Bitcoin is a security...The issue is that howey test might be too old to work on cryptos.

thisgoesnowhere 3y ago
What is too old about it?
- m00dy 3y ago
  So, do you think everything is crystal clear ?
  - thisgoesnowhere 3y ago
    Yes
    - m00dy 3y ago
      ok then why bitcoin is not a security but Solana is a security ?

deleted 3y ago

[deleted]

Retric 3y ago

Binance was up for “money laundering and tax offenses” issues because they deal with large sums of fiat money independent from what’s being sold. Replace Bitcoin with physical artwork and you can still run into issues here. 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.

dsg42 3y ago

The only question here is whether cryptocurrency is a security or a commodity. Securities fall under regulation by the SEC (SECURITIES and Exchange Commission). Commodities are regulated by the CFTC (COMMODITIES Future Trading Commission). SEC Chair Gensler agrees that Bitcoin is a commodity, but thinks everything else is a security.[1] Securities are much more tightly regulated than commodities. The SEC is making it clear with these complaints that they believe certain cryptocurrencies are securities. 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-the-sec-chair-will-call-a-commodity https://www.axios.com/2022/06/28/bitcoin-is-the-only-coin-th...

dcow 3y ago
Curious: is "bitcoin" being used by the SEC as a general term to mean "all cryptos that fundamentally employ a work-based consensus algorithm", or "pure" cryptos or whatever? Or is it not yet clear to the SEC that there are more instances of Nakamoto consensus networks out there and not everything other than BTC is a security? 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.
- potatototoo99 3y ago
  Of course not everything other than bitcoin is a security. My private blockchain no one knows about is not a security. It's not a universal law of the universe. 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.
  - dcow 3y ago
    I’m just trying to understand the context. I hope it is as you say and it would be my baseline assumption that it is as well. But it’s not unquestionably obvious given history and what relatively little context is present in this thread. The SEC used to think all crypto is a security to the point where honest miners are instructed to declare blockchain rewards as income (I have, and TurboTax even asks you if you acquired crypto in the last year with no nuance as to how you acquired it or which one you acquired). It may be obvious to you and me but my question was more about how far the SEC’s understanding has evolved.

jksmith 3y ago

There was no ICO, it has an immutable fixed supply, it's not in perpetual startup mode, and not centrally controlled operationally and can't be bought back.

spaceman_2020 3y ago

Bitcoin might be classified as a commodity, but nearly every other crypto out there, especially anything with a premine or any sort of revenue sharing, is pretty clear cut a security.

whimsicalism 3y ago
I disagree that the line between 'premine' and what happened with Bitcoin is actually all that clear. 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.

tempsy 3y ago

They aren't claiming Bitcoin is a security. In fact they've made it pretty clear Bitcoin and maybe ETH are not. They are claiming a bunch of the newer cryptos like SOL are, though.

jcranmer 3y ago

SEC isn't suing Coinbase over Bitcoin. They're suing under two things: 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!

mrcode007 3y ago
Very good points. People often go a long way to argue against the Howey test. The best example is Howey Co case. If someone is a lawyer dealing in securities and acting as an advisor I would have expected them to be familiar with the law. Coinbase issuing public statements to SEC “tell us what is a security” were basically a ploy or the lawyers involved were extremely inexperienced. https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co https://en.m.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.
- whimsicalism 3y ago
  It is not obvious a priori how regulators will treat tokens or which ones will be permissible.
  - qeternity 3y ago
    It was obvious to a lot of people who were wondering what was taking regulators so long.

darksaints 3y ago

So many of these HN conversations devolve into shit bonanzas because so many people approach this topic as if it is a "Regulation vs No Regulation" topic, instead of the more appropriate "Bad Regulation vs Good Regulation" topic, or even more appropriately the "Which agency should have jurisdiction" topic. And it is a shame, because cryptocurrency has largely outgrown the anarchocapitalist utopian's mindshare, and the people involved that actually want no regulation are an extreme minority now. 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.

anonymouskimmer 3y ago
> And from my handful of years as a commodities trader 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.

deleted 3y ago

[deleted]

0xbadcafebee 3y ago

pretty much everything can be a security, and everything is securities fraud. ask Matt Levine if you don't believe me.

paulddraper 3y ago

> Crypto currency is a commodity Could you explain this to me? Are there any other examples of non-physical commodities?

shermanyo 3y ago
Is music an example of a non-physical commodity?
esonoi 3y ago
Crypto is more a commodity than currencies, because unlike currency, crypto is subject to the same speculative supply and demand forces as conventional 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.

deleted 3y ago

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throwaway7356 3y ago

> Since when is "aluminum" a security? 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.

Consultant32452 3y ago

Are there any crypto tokens not backed by a state that the SEC has officially and clearly declared a currency and not a commodity? 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.

jonathankoren 3y ago

>If you look up the definitions of "security", "financial instrument", "commodity", and "currency", it is pretty clear that a plain vanilla crypto-currency like Bitcoin is no ordinary security nor a financial instrument. It is not a claim on something else, even less so than a traditional bank note. It is more like a commodity. Since when is "aluminum" a security? 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.

foobarbazetc 3y ago

It’s kind of interesting that the “commonwealth” countries (AU/NZ/GB/CA) have different classifications of crypto (AU/NZ treat them as property, CA as securities, GB varies depending on the thing). 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.

esonoi 3y ago

I’m not a lawyer but work in the industry. 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.

MagicMoonlight 3y ago

Gold is a commodity because it exists in the real world and you make it. Bitcoins aren't a commodity because a random person or entity has created it with the intention of selling it to people as a financial instrument. 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.