29 ms·

“But the SEC let us go public” and other flawed arguments in Coinbase's defense

295 points by 0xedb 3y ago

pylua 3y ago
It is scary to me how much legislating is done by these government bodies inside the (executive ?) branch. I do sympathize with anyone trying to get clear requirements in black and white terms of what is and isn’t acceptable . I think this is more of a systemic failure.
- gamblor956 3y ago
  The entire point of Congress writing laws and delegating the specific rulemaking to agencies is so that informed experts can make the laws, with input from affected parties and the public, instead of uninformed legislators. And note: Congress has the opportunity to reject rules passed by an agency that it determines conflicts with the intent of the governing law(s).
- JohnFen 3y ago
  The SEC is not part of the executive branch. It is an independent agency. While it is also not part of the legislative branch, the legislative branch is the one that effectively controls it.
  - pylua 3y ago
    Thanks for the insight. It does feel like the organizations ability to interpret the laws is more related to a political agency than the letter of the law. There should just be a letter of the law , analytical meaning branch of government.
    - JohnFen 3y ago
      It's also useful to know that Congress created the SEC in response to the 1929 stock market crash. Their primary purpose is to prevent the conditions that caused that. > There should just be a letter of the law , analytical meaning branch of government. I don't think that's a thing that is possible. You can't write laws to cover every possible case, and writing them to be "self-interpreting" would be an extraordinarily difficult thing. Interpretation will always be required.
      - pylua 3y ago
        That’s why it’s a systemic failure . Years of law study to interpret laws with context long dropped. The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently.
        anonymouskimmer 3y ago
        It's a systemic failure of analytics, not a systemic failure of the law. > The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently. There are numerous other possible reasons it took this long for the SEC to take action, other than the system being overly complicated or inefficient (lack of workers, bigger fish to fry [prioritization], the evolution of Coinbase into less of a commodities trader and more of a securities trader). Complications and inefficiencies usually require additional time and effort, but additional time and effort is not an absolute indication that something is complicated or inefficient.
        rtkwe 3y ago
        Yeah for the longest time Coinbase was mainly hosting the relatively old coins that tended to be closer to commodities than securities. While they were doing that it's a very different regulatory environment.
        JohnFen 3y ago
        > The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently. I disagree with this assessment, but reasonable people can hold differing opinions on this.
        knewter 3y ago
        "you can run a company for nearly a decade while spending a great deal on lawyers talking to the government the whole time and still have no clue if your business is legal"
      - 3y ago
    - ikiris 3y ago
      This is never how the law has worked
      - mrguyorama 3y ago
        It's so much worse than that. "Laws should be exhaustively comprehensive" is a completely unworkable system. You cannot predict every possible combination of context and law, and attempting to do so would be literal combinatorics explosion. People who push that kind of system know this, and want the system to be hamstrung by exactly that situation. They want a system that can only outlaw their new, explicitly harmful scheme after an entire game of politics in congress, such that they could prevent something becoming law by encouraging the already bad stonewalling in congress. They want government agencies to be so bound up by poorly written law that they cannot administrate at all.
        pylua 3y ago
        I just want a system that is predictable , objective and that works quickly . Saying that there are flaws in the current system simply offends the gate keepers of the system.
        ikiris 3y ago
        I just want a billion dollars and a unicorn. We both have to work in reality.
    - pjc50 3y ago
      > There should just be a letter of the law , analytical meaning branch of government. This is called "a court". (There is a particular phrase for "the law is unclear so I'm going to sue the regulator in advance to determine if something is legal", but I've forgotten it. It's linked to judicial review)
  - semiquaver 3y ago
    > The SEC is not part of the executive branch. You are mistaken. The SEC is very much a part of the executive branch. > It is an independent agency So is the CIA. This just is a term of art for a particular type of executive agency distinct from a cabinet department with additional insulation from political control. SEC commissioners are nominated by POTUS and confirmed by the senate, a characteristic unique to the leaders of executive branch departments. https://en.m.wikipedia.org/wiki/Independent_agencies_of_the_United_States_government https://en.m.wikipedia.org/wiki/Independent_agencies_of_the_...
    - JohnFen 3y ago
      > The SEC is very much a part of the executive branch. Not according to the government, and they're the horse's mouth on this. > SEC commissioners are nominated by POTUS and confirmed by the senate This is correct, but not really to the point.
      - semiquaver 3y ago
        > Not according to the government, and they're the horse's mouth on this. You seem to be referencing some specific statement that you didn't provide. I'm guessing that you are confused about the phrase "independent agency". Or possibly you're remembering cases like Lucia v. SEC where certain SEC staff were (unsuccessfully) challenged as not conforming with the Article II appointments clause. The insulation of these sort of agencies from direct presidential oversight continues to be a source of debate in conservative legal circles, but where these agencies sit in the constitutional order is not remotely controversial. They're not part of the judiciary and they're not part of Congress so they can only be part of the executive. > The executive branch also includes executive departments, independent agencies, and other boards, commissions, and committees. https://www.usa.gov/branches-of-government https://www.usa.gov/branches-of-government > The SEC is an independent federal agency https://www.sec.gov/strategic-plan/about https://www.sec.gov/strategic-plan/about QED. More to the point, congress lacks the ability under the constitution to create government structures outside the three branches. The language establishing the SEC makes very clear that its structure conforms with how Article II defines the executive branch: > There is hereby established a Securities and Exchange Commission (hereinafter referred to as the ‘Commission’) to be composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate. https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-1885.pdf https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-188... > he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: https://constitution.congress.gov/constitution/article-2/ https://constitution.congress.gov/constitution/article-2/ The SEC is established and appropriated by congress, staffed by people who receive government paychecks, led by presidential appointees, etc etc. I'd be interested to know whether you think it's either - not part of the US government - part of a different branch - part of the US government outside a branch that the constitution specifies
- burnte 3y ago
  > It is scary to me how much legislating is done by these government bodies inside the (executive ?) branch. Congress explicitly delegated these authorities to these agencies as part of the administrative state overhaul in the beginning of the 20th century. The reason was to help become more responsive, and less beholden to daily politics by putting neutral experts in charge, and by and large it works. Safety and security shouldn't be party politics.
  - pylua 3y ago
    That is good history to know , thank you. It does feel like to me in this case, this is a failure due the government being slow to respond and unable to produce an interpretation of the law consistent with a completely analytical meaning letter of the law, in my opinion.
    - deleted 3y ago
      [deleted]
    - toast0 3y ago
      Delegate to agencies is a way for government to be less slow. In the case where congress is faster, they can pass new laws with more specifics and less left to the executive branch, but that's often not very fast.
    - Hermitian909 3y ago
      > unable to produce an interpretation of the law consistent with a completely analytical meaning letter of the law The legal profession writ large (including legislators) consider this a feature, not a bug. The reason this is the legal profession's opinion essentially three points: 1. You can't write "bug free" laws and regulations 2. Fixing mistakes in laws and regulations is slow 3. The amount of damage someone can do with unintended legal cover can be catastrophic (imagine if I found a legal loophole to take possession of your home!) So this has been chosen as the "least bad" solution. My personal opinion is that the SEC is acting within the spirit of the law which is what we should expect and if congress wanted to change things they should pass a new law.
- deleted 3y ago
  [deleted]
- meepmorp 3y ago
  Why? I think it makes sense to delegate rule making to specialized agencies that are specifically staffed for handling the kind of regulation they're meant to apply. I don't doubt that the process could be improved, but insulating decisions about how to protect investors from political interference sounds like a fine idea.
  - pylua 3y ago
    Originally well intentioned , I think we are seeing it break down here. I am not a lawyer, but as a layman I am not convinced by the sec and their interpretation of things. I am inclined to think that they will bow to political pressure and what is expedient for the current legislature instead of looking at things in a completely objective analytical manner.
- GartzenDeHaes 3y ago
  It's called regulating. For areas that require complex administration, Congress passes laws that express its intent and directs the administrating agency to make rules that implement their intent. Congress can amend these laws to expand, contract, or direct the regulations made by these agencies.
  - pylua 3y ago
    Vague laws that take years of law to interpret then passed to an agency that does not have the same context of laws passed 100 years ago. If the system worked and the sec felt this way Coinbase should have never existed . This is proof that it is not working.
    - GartzenDeHaes 3y ago
      There were plenty of scams and scammers 100 years ago. Doing it with a computer doesn't change anything.
    - mrguyorama 3y ago
      There's nothing about a crypto token that make the economics different though. That's the whole point. That's why law from 1930 is relevant. Crypto isn't economic innovation.
- mort96 3y ago
  I may be confused here. But to my understanding, the role of the executive branch is to enforce laws. In this situation, there exists a law that was passed by Congress. Coinbase is breaking that law. Is it not the executive branch's role to enforce that law?
- semiquaver 3y ago
  > clear requirements in black and white terms of what is and isn’t acceptable. I’ll give you the benefit of the doubt and assume you have been misled by this frequently made claim. It’s just not true. The requirements have been clearly stated for a long time, they’re just not what people in the crypto space want to hear, so they pretend the guidance and law doesn’t exist. This document dates from 2019 and lays out in detail what constitutes a security wrt cryptocurrency from the SEC’s perspective. They’ve been quite clear about this for a long time. The relevant case law has been settled for 70 years. https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an... The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins traded on coinbase that they believe to be securities. Here’s an example from last year from an insider trading case. https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1... > For example, on November 12, 2021, Ishan learned that Coinbase would soon announce the listing of the crypto asset POWR. As alleged further below, POWR was a crypto asset security > A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include “investment contract,” i.e., if it constitutes an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others. > Coinbase planned to announce the listing of crypto asset AMP on its platform. As alleged further below, AMP was a crypto asset security. > Coinbase intended to announce on July 14 that the RLY token would be listed on its platform. As alleged further below, RLY was a crypto asset security. Rather than accept those statements and obey the law coinbase chose to ramp up the PR offensive instead. The real issue is that cryptocurrency companies hoped they had found a loophole —they wish the law and SEC guidance weren’t what it is, and they keep dishonestly claiming a lack of clarity exists in the hope that doing so will change things.
  - kjs3 3y ago
    I wish I could upvote this a couple of dozen times, because it's really the core of the issue. All this "the SEC won't give us guidance" is theater.
    - 3y ago
gurchik 3y ago
Sorry for the stupid questions, I really know very little about crypto. With that said, > Gensler firmly maintains that the vast majority of crypto assets are securities, with the exception of Bitcoin Why? From an article on Reuters[1], > Bitcoin is not considered a security because its anonymous and open-source origins mean investor profits are not dependent on the efforts of developers or managers, said Carol Goforth, a law professor at the University of Arkansas. How is this different from, say, Ethereum? What about when changes to the Bitcoin network are done (either directly e.g. bug fixes or indirectly such as hard forking), does this not count as "efforts of developers or managers?" ^1: https://www.reuters.com/business/finance/what-makes-crypto-asset-security-us-2023-06-07/ https://www.reuters.com/business/finance/what-makes-crypto-a...
- super256 3y ago
  Ethereum ICO‘d and therefore doesn’t pass the Howey test.
  - everfree 3y ago
    The Howey test is applied to the current status of an asset. It doesn't take an asset's origins into consideration. If you believe that Ethereum currently represents "an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others", then it is a security. If not, then not.
    - babyshake 3y ago
      Is there a statute of limitations or a similar concept? For example, hypothetically would it be possible 30 years after the Ethereum ICO for the SEC to declare that ETH has been a security the entire time? As of now, it's been almost 10 years since the Ethereum ICO.
      - yokem55 3y ago
        5 years unless there is evidence of active fraud.
triceratops 3y ago
Can anyone summarize what the stakes are here? Is a loss for Coinbase a company-ending event? Or is being forced to register all the coins that aren't BTC or ETH a costly regulatory burden? What are the implications of registering all these coins as securities? Does it affect whether they can be offered to non-accredited investors? How expensive is it? Who bears the costs?
- civilitty 3y ago
  > Is a loss for Coinbase a company-ending event? We don’t do that kind of thing in America except for the occasional Enron when extreme levels of fraud are involved and someone takes out California’s electrical grid to boost profits. IANAL but these SEC violations don’t seem to fit the bill.
  - triceratops 3y ago
    See: https://en.wikipedia.org/wiki/Aereo https://en.wikipedia.org/wiki/Aereo The courts found their business model and technology fundamentally illegal.
  - paulpauper 3y ago
    how about for-profit colleges . many were forced to shutdown due to lawsuits and major regulation under Obama
  - adsfgiodsnrio 3y ago
    "OK, securities exchange, you can continue operating as long as you shut down the securities exchange." I suppose they can keep the office cafeteria open.
- habitue 3y ago
  The issue is that if most coins are securities, then that means in order to operate, Coinbase has to become a registered securities exchange in order for it to do what it does. The regulations for securities exchanges are onerous, but also many of them aren't possible to comply with for crypto because of how it works. So the SEC is saying "You are an unregistered securities exchange" And coinbase is saying "Please give some kind of route by which we could possibly be compliant given the nature of cryptocurrencies" And the SEC is saying "We have no obligation to give you such a route, just as we have no obligation to provide such a route for criminal black markets" Who you interpret as being unreasonable here depends on if you think crypto is closer to the black market example, or if it's closer to being like regular securities but with a few tweaks to the rules to make it work.
crazygringo 3y ago
> Coinbase, as with most crypto platforms, has decided it wants to simultaneously operate as an exchange, broker-dealer, and clearing agency. These three functions — bringing together securities orders for buyers and sellers, trading securities on behalf of others, and intermediating trades — are typically required to be separate due to conflicts of interest that emerge when one entity controls all of them. Coinbase would need to fundamentally change its business model in order to separate these functions, and thus far seems unwilling to do so. “[Crypto intermediary compliance is] not just a matter of ‘paying lip service to [the] desire to comply with applicable laws’ or seeking a bunch of meetings with the SEC during which you’re unwilling to make the changes needed to comply with the securities laws,” said Gensler in a speech a few days ago. Can someone knowledgeable here clarify if this really is the crux of the problem? The previous HN thread seemed to mainly be of the opinion that Coinbase wasn't registering the non-Bitcoin crypto, but that the problem was the SEC wasn't giving clear guidance on whether they needed to be. But I don't understand what ramifications that has. Why didn't Coinbase just register everything non-Bitcoin? Would that have limited/destroyed its business model in the way the quote above suggests? Edit: thank you so much to all the replies so far! This is incredibly helpful.
- unyttigfjelltol 3y ago
  The problem is that issuers of crypto don't file S-1's and the like. They apparently claim it's because the investment involved in crypto is technology-enforced scarcity and not any interest in an actual business. They might propose instead publishing a white paper about how their technology works. Since there's no satisfactory registration, there's no legitimate industry. The Coinbase situation is a follow-on consequence.
  - unyttigfjelltol 3y ago
    Which, when you think about it makes sense. Why would consumer protection folks waive consumer protections simply because the would-be issuer confirmed there was no intrinsic value in the offering?
    - 3y ago
everfree 3y ago
I stopped reading the article when it started comparing cryptocurrency exchanges to the business of selling heroin. No matter your opinion on the issue, that's just alarmist nonsense. I agree that it's reasonable to apply existing securities laws to cryptocurrency, and I agree that "but they let us go public" is a bad argument, but Gensler's SEC has also been intentionally obtuse about how those securities laws should apply to cryptocurrency. It's not a company's job to go to court over ambiguous regulations, it's the SEC's job to actually research what they are regulating and put out a comprehensive framework for how they make their regulatory determinations, because the Howey Test is so subjective that it's leaving companies guessing on the cutting edge of public programmable assets. Look at the UK's upcoming crypto bills for an example of commonsense regulation that protects consumers and is in everyone's best interest. The contrast between it and the US's approach is striking.
- deleted 3y ago
  [deleted]
- ceejayoz 3y ago
  > Gensler's SEC has also been intentionally obtuse about how those securities laws should apply to cryptocurrency. No. Coinbase’s complaint is that the SEC has been clear, but that they don’t like the clear answer. https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpndWQm/78f95afa4f0ebaaefb303e1a4f172d03/Coinbase_petition_for_SEC_rulemaking.pdf https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn... > Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital tokens are securities, and has asked issuers and exchanges that offer, sell, and trade them to come in and register. We disagree that the majority of digital assets are securities. For those digital assets that are securities, registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens.
  - nickff 3y ago
    Well, the SEC told everyone to register, but didn't actually tell them how they could. From what has been made public, it seems like the SEC strung Coinbase along for about two years, then said that their application was inadequate (without stating any criteria).
paulpauper 3y ago
Congress has been far from united on the crypto issue thus far, particularly in the wake of the FTX collapse, and the various drafts of legislation that have been proposed have largely been dead on arrival. But Coinbase has put a significant amount of time, effort, and money into lobbying: in 2022, they spent $3.4 million lobbying the crypto industry (on top of Binance’s $1.1 million spent lobbying in the US, all coming together to amount to around $11.9 million in lobbying efforts from the industry that year). This seems like very little relative to a company worth tens of billions of dollars?
- donavanm 3y ago
  For context the largest tech companies in the world spend in the range of $5-20M on lobbying each year. So these crypto cos spending $1-3M is either very high or in line with expectations, depending on your perspective. For AMZN, my employer, $20M is pretty small compared to the $514B revenue and $10B in profit (excluding the rivian charge). Coinbase spending $3m does seem high in that comparison.
- anonymouskimmer 3y ago
  Lobbying isn't bribes to congresspeople. It's hiring some specialists who are known to congresspeople in order to sell those congresspeople a line. After a point more money doesn't buy you that much more benefit.
RestlessMind 3y ago
I like reasoned critiques of crypto. Heck, I think many crypto actors are scammers and should be punished. However, a lot of crypto is legit and this piece reeks of bias. Some examples: - comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin. What message is SEC trying to deliver? That holding Bitcoin via futures-based ETF is okay but crypto itself is scam? Kafka couldn't have invented a better plot - scare quotes when saying “tyrannical” Gary Gensler - tyrannical is an apt description of Gary. See the previous point about kafkaesque treatment. Also see the congressional testimony where the dude didn't even have a clear answer about the status of Ethereum, which is bigger in market cap than 90% of S&P500. Talk about protecting American consumers!
- nickff 3y ago
  I suspect that Gensler was obfuscating intentionally when asked about cryptocurrency. Modern regulators seem to prefer retrospective punishment over prospective advice and regulation.
  - pseudo0 3y ago
    It seems like a massive regulatory failure to let Coinbase IPO if there are the sort of glaring issues they claim. Coinbase has a market cap of around $10 billion, and is owned by retail investors as part of standard index funds. If it goes to zero tomorrow because of the SEC, that is billions of dollars in losses that could have been avoided by more responsible regulatory behavior. Meanwhile insiders will have cashed in through salary, stock sales, etc.
    - shagie 3y ago
      Here is Coinbase's S1 - https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/699359de-d974-4ad9-b7f6-5031f2f432d3.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/699359d... And the S1A https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c9475761-bae4-4556-b8f3-b6d74e47b5f0.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c947576... In particular: > Bitcoin sparked a revolution by proving the ability to create digital scarcity: a unique and finite digital asset whose ownership could be proven with certainty. This innovation laid the foundation for an open financial system. Today, all forms of value – from those natively created online such as in-game digital goods to traditional securities like equities and bonds – can be represented digitally, as crypto assets. Like the bits of data that power the internet, these crypto assets can be dynamically transmitted, stored, and programmed to serve the needs of an increasingly digital and globally interconnected economy. > Today, we enable customers around the world to store their savings in a wide range of crypto assets, including Bitcoin and USD Coin, and to instantly transfer value globally with the tap of a finger on a smartphone. We provide companies with new ways to transact, incentivize, and reward their users, from offering compounding rewards on savings that pay out by the second to compensating users for virtually completing tasks through global micropayments. The claim is that they're selling assets and traditional securities that are represented digitally. And they acknowledge the risks of future regulation: > • We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition. > ... > • A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected. The 'i's are dotted and the 't's are crossed. Is the SEC to evaluate those future possibilities that the assets they claim (in addition to Bitcoin) may be considered securities? Coinbase said its a risk and, well, yep - it is.
throwaway22032 3y ago
It's not clear to me why almost any of these coins even need to be listed by regulated exchanges. Couldn't they just stick with BTCUSD and a few others then let decentralized exchanges deal with crypto-crypto trade? Would they really lose that much business? I always assumed (though I've never actually checked, it doesn't interest me that much) that almost all of the shitcoins were like, the long tail few % of revenue for these businesses, and it feels like that's where all the risk is, since Bitcoin is generally recognised as a commodity. I mean, if needs must, spin off the shitcoin stuff into its own entity?
- yokem55 3y ago
  You could probably address 99% of the market only selling BTC, a stable coin, and small amounts of Eth needed for gas and then any other trading could happen on dex's. And you could make that a modestly profitable business if you run a tight ship. But you won't build an empire doing that.
- nuclx 3y ago
  It's just a first step. Transferring crypto from a DEX to a fiat offramp may be restricted or illegal in the future.
avsteele 3y ago
All other arguments aside: the bottom line is that everyone who invested in crypto did it with the knowledge that Coinbase wasn't a securities broker. The SEC just can't imagine a world where customers are fine without their 'protection'. We don't want your help, we don't need your help. GO away.
- anonymouskimmer 3y ago
  > The SEC just can't imagine a world where customers are fine without their 'protection'. We don't want your help, we don't need your help. GO away. This is all well and good until you mess up the economic system for the rest of us. The Great Depression didn't just hit those with stock certificates. And the Great Recession didn't just hit those with mortgage-backed securities.
  - landoftheice 3y ago
    [dead]
- dotnet00 3y ago
  You might be sufficiently informed on the topic and sufficiently good at managing your crypto, but if you've seen the whining after any crypto company has turned out to be a scam or has otherwise failed, it's pretty obvious that most people cannot be trusted with the ability to participate in an unregulated crypto market. In a way, the mere existence of these big centralized exchanges is indication enough of the fact that the average person cannot be trusted to handle crypto without government backing them.
- itairal 3y ago
  [dead]
anonymouskimmer 3y ago
Off-topic but addressing the article, text which can be highlighted with a mouse should also be obviously a link (underlined, or in an aqua font in this case) if it functions as a hyperlink. > On June 5, the SEC filed thirteen charges against crypto giant Binance, companies under its control, and its CEO Changpeng “CZ” Zhao. The charges against the companies involve unregistered offers of securities and investment schemes; failing to register with the SEC as an exchange, broker, broker-dealer, or clearing agency; and making materially false and misleading statements to investors. Two of the charges are against CZ specifically, as the control person over Binance and Binance.US.
loveparade 3y ago
I don't understand how anyone can take this obviously super-biased articles from someone who has made it their career to hate anything crypto-related seriously. It's full of personal jabs and bias like "my guess is that it’s going to involve a lot of PR stunts and headline-grabbing" It's obvious that there is zero incentive here to do any real reporting or research. It's just clickbaity headlines and statements appealing to people who hate crypto. Of course it's hidden under a veil of neutrality with a biased selection of links that nobody actually clicks on scattered throughout the article.
- deleted 3y ago
  [deleted]
- _fizz_buzz_ 3y ago
  The bias is obvious, but is there anything factually wrong in the article?
  - loveparade 3y ago
    It's not about what's wrong, it's about the selection bias of what's included in such an article. You can write a technically "factually correct" article by only including statements that heavily favor one side of the argument, which is what's done here. Also, "facts" in topics that touch politics and law are complicated. This is not like science where measurement can be unambiguous. Most facts in topics such as these like these are not scientific facts, but highly politicized opinions that are ambiguous and open to interpretation. Much of the legal code is (on purpose) open to interpretation, including what's a security and what's not. When trying to understand a topic like this the IMO best thing you can do is seek our content from people who have a somewhat neutral stance. Don't listen to a16z who want to pump all their crypto tokens. Don't listen to Molly White whose whole career depends on bashing anything crypto-related.
    - refulgentis 3y ago
      That's called "expressing an opinion." What world would we live in if the very fact we wanted to talk about something meant we couldn't? You're welcome to write a rebuttal but you're attacking the messenger repeatedly instead. She wrote a cogent concise article that describes what's going on in the real world. Now, we await your brilliance, as soon as you're done repeatedly telling us it's "her career."
jerry1979 3y ago
I'm confused why the SEC is suing specifically over DASH (2014) but not specifically Ethereum (2015). https://www.sec.gov/litigation/complaints/2023/comp-pr2023-102.pdf https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1...
personjerry 3y ago
If I used Coinbase to purchase ETH (and it's still held there) should I be moving those assets right about now?
- latchkey 3y ago
  Self custody is always the best route, if you know what you're doing. If you have zero clue on how to set up and secure a wallet and don't care to do it, Coinbase is probably an ok option, for now. Not financial advice, but smart move to be buying ETH.
- noitpmeder 3y ago
  Yes -- if you are concerned about coinbase losing this deal you should be moving all assets (coins, dollars, ...) out.
- jacquesm 3y ago
  Yesterday would be fine too. In general you should not hold a balance anywhere but in a bank that is backed by the Federal Deposit Insurance Corporation (FDIC) or your local equivalent. If it's pocket change then it doesn't really matter.
  - Dylan16807 3y ago
    FDIC is great, sure. But there's a significant difference in risk in having $500 in Amazon gift cards versus that store in the dying mall that's probably going to be gone in six months. And it's reasonable to try to figure out which one Coinbase is. There are many value that are neither trivial nor worth the effort of upgrading from pretty safe storage to completely safe storage.
    - jacquesm 3y ago
      These have nothing to do with each other.
      - Dylan16807 3y ago
KingOfCoders 3y ago
The reason why many like crypto is that it's the purest form of speculation. Stocks, pork halves, the $, all are more or less tied to reality and influenced by reality - even gold. Crypto isn't which makes it so beautiful in the eyes of some.
joanne123 3y ago
[dead]
kaycey2022 3y ago
I think its pretty shitty to want an entire sector of possibilities to just collapse and die just because some people are greedy.
- kredd 3y ago
  Pardon my ignorance, but what possibilities? It’s been more than 10 years since BTC was promoted as “peer-to-peer money transfer with no middle men!”, but in all western countries this idea has been rejected by public due to limitations posed by blockchain itself (e.g. no reversals). The past 6 years, all I’ve seen is either ICO scams, or casino-like trading which impacts the poor mostly (same concept as why lottery is being bought by poorer population at large). We can’t even say “oh, it’s not even mainstream yet!”, as I’m sure almost everyone has heard of Coinbase, FTX, Crypto.com and etc. through superbowl ads or casual bar conversations. So, I get a bit confused nowadays when people say “US will lose by not adopting the technology”, since there’s nothing really to adopt yet.
  - kaycey2022 3y ago
    I can think of many use cases that may be non trivial to get running. For example, if crypto had a privacy layer, which a lot of people are working on right now, it could easily enable a secondary market in digital goods, subscriptions etc. Imagine you bought a 1 year subscription to something which is locked behind some credentials. 2 months down the line you feel you're not using it a lot and would like to get some of your money back by trading those credentials. Crypto networks would enable a secondary market for those. Sure it can be done with web2 but crypto presents another possible solution. It could also be a way to organise open source software communities around paid work that can incentivise activity around the preferences of the donor, in addition to the current model of free volunteer work. Even NFTs could be used as an abstraction for the access of digital properties. Their popular use for distributing art became a limiting distraction. 10 years since BTC is hardly enough time for anything. As more sophisticated features are developed for the underlying networks, good use cases will come. A lot of oxygen was sucked out by use cases involving speculative investment. The gambling aspect of crypto is never going away and I don’t think its a problem. Some responsibility has to be taken by the people who chose to trust scammers with their money. In fact at the height of the NFT craze people who are public influencer types were openly scamming and rug pulling marks on fucking youtube. How many of them got arrested? It is right to ask for action against criminals. But instead of that you have US government agencies trying to shut down an entire sector of commerce just because some guy made important people in seats of power look bad. None of this is being done to protect the people who lost money. I don't think crypto is valuable for things like poverty alleviation etc. That is a challenge which has to be taken up by individual countries. Anyone who says crypto is going to save the world should be looked at with as much scepticism as the tech founders 10 years back who were claiming to do the same thing. Crypto is super interesting technology that is one of the few tools that can fight the inexorable oligarchization and centralisation of all things in this world. It can make a lot of people very rich by providing them with opportunities that wouldn’t be possible under the current system of monopolies and governments controlling access to everything. For that reason it doesn’t deserve to die. In any case, SEC can only set back the adoption of crypto networks in the US. But as tech proliferates around the world, cutting crypto off from the home of “tech” will not kill crypto. It just pushes the timetable back a little bit.
SilverBirch 3y ago
Look guys, people are allowed to write articles with an opinion you disagree with. If you want to tell us all you stopped reading when a comparison was that you feel is unfair take a moment to reflect that really, that just makes you look silly and tells us nothing about the article. It's honestly the weakest form of critique. I think she raises some really salient points, and it looks extremely bad that the CEO of Coinbase is making clearly specious arguments. I don't believe the SEC's approval of his filing says anything about the regulations around this securities law. I think he thinks he can win some cheap PR points with people who don't know any better. Acting like that does indicate that he probably doesn't have any real defense. People don't make bad arguments if they have good ones available to them.
al_be_back 3y ago
>> “Remember: The SEC reviewed our business and allowed us to become a public company in 2021.” If it's normal for a startup to patch their software to keep up-to-date with changes/time, I wouldn't be surprised if SEC / Gov / Justice Dept updated their Views/Position with time!
MrPatan 3y ago
So we're killing crypto again. Okay! This time around just buy some while it's cheap. You may learn a thing or two. About finance, and about yourself. At 50k you remembered checking it when it was 25k, and regretted not buying. Well, it's 25k again, lucky you! But wait! Is this me trying to help you? Shill my bags? Or trying to reverse-psyops you into staying a nocoiner? Take your pick!
LatteLazy 3y ago
The point here is that if the SEC is letting illegal businesses go public, it is doing really badly at it's job. If that is the case, it might be legal for the SEC to act that way, it would not make coinbase legal (permission to go public is not a get-out-of-jail-free card), but it would be really really damning for SEC leadership. It would be like a cop giving a speeding ticket to a kidnapper and then letting them go because he's "just on traffic duty". That would be perfectly legal, that would not make kidnapping ok, but I'd still fire the cop for gross gross negligence.
yobid20 3y ago
Will coinbase pull out of US? I hope not. Limited options for ny users to exchange with usd.
- _fat_santa 3y ago
  No. Part of the reason they went public is to show: “hey look we’re a publicly traded American company, not some legal entity operating out of a Caribbean country”. Them remaining an American company is a big part of their pitch for choosing them over others.
miracle2k 3y ago
When approving the S-1, the SEC was asked to review a business, not one selling filtration technology, but one selling illegal securities, well within their area of expertise. I think Americans should fairly expect their regulators to be clear enough about the rules that the very securities regulator, whose job in large part it is to protect retail investors, not allow a company who is in the business of selling illegal securities to go public, and then take multiple years to file suit. Any crypto sceptic who does not see a problem with this is tainted by their priors.
- q1w2 3y ago
  Think about this in a more practical mindset. While crypto was growing and experimenting and not causing great harm, the regulators were happy to let it do its thing. The moment major losses occurred due to large scale fraud collapses, THAT is when the regulators decided to pay more attention and look for rules that might be getting broken. Moreover, with the increased use of crypto by nation states such as North Korea, Russia, Iran, Hamas, etc... to evade sanctions and launder money, and the general lack of any material crypto economy, then parts of the gov't, in general, are starting to think the show needs to end for crypto - and are talking to regulators to shut down exchanges. That is why there are no "productive conversations" between Coinbase and regulators. The regulators don't want to give them any valid methods of operating - because they NOW don't want them to operate at all.
- itsoktocry 3y ago
  >whose job in large part it is to protect retail investors, not allow a company who is in the business of selling illegal securities to go public, and then take multiple years to file suit First, it's not ideal, but an investigation takes time. Second, had the SEC said "we're not allowing you to go public because we think your business might be breaking ambiguous laws" it would have destroyed Coinbase with a combination of reputuational damage and the inability to raise money to operate. All for something that might be true but was unproven? That doesn't sound ideal, either. By the way, love the "anyone who thinks otherwise is tainted" bit at the end, it truly speaks to our political climate.
  - 3y ago
alexnewman 3y ago
- Just because something is a commodity doesn’t mean it’s not a security - just because something is a currency doesn’t mean it’s not a security There’s a reason why we separated exchanges, brokerages and clearing houses. Now it seems Binance is touching customer funds. Perhaps we just can cefi and use defi in crypto. If people want fiat on ramp they get a circle or tether account and redeem there
deleted 3y ago
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295 points by 0xedb 3y ago

It is scary to me how much legislating is done by these government bodies inside the (executive ?) branch. I do sympathize with anyone trying to get clear requirements in black and white terms of what is and isn’t acceptable . I think this is more of a systemic failure.

gamblor956 3y ago
The entire point of Congress writing laws and delegating the specific rulemaking to agencies is so that informed experts can make the laws, with input from affected parties and the public, instead of uninformed legislators. And note: Congress has the opportunity to reject rules passed by an agency that it determines conflicts with the intent of the governing law(s).
JohnFen 3y ago
The SEC is not part of the executive branch. It is an independent agency. While it is also not part of the legislative branch, the legislative branch is the one that effectively controls it.
- pylua 3y ago
  Thanks for the insight. It does feel like the organizations ability to interpret the laws is more related to a political agency than the letter of the law. There should just be a letter of the law , analytical meaning branch of government.
  - JohnFen 3y ago
    It's also useful to know that Congress created the SEC in response to the 1929 stock market crash. Their primary purpose is to prevent the conditions that caused that. > There should just be a letter of the law , analytical meaning branch of government. I don't think that's a thing that is possible. You can't write laws to cover every possible case, and writing them to be "self-interpreting" would be an extraordinarily difficult thing. Interpretation will always be required.
    - pylua 3y ago
      That’s why it’s a systemic failure . Years of law study to interpret laws with context long dropped. The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently.
      - anonymouskimmer 3y ago
        It's a systemic failure of analytics, not a systemic failure of the law. > The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently. There are numerous other possible reasons it took this long for the SEC to take action, other than the system being overly complicated or inefficient (lack of workers, bigger fish to fry [prioritization], the evolution of Coinbase into less of a commodities trader and more of a securities trader). Complications and inefficiencies usually require additional time and effort, but additional time and effort is not an absolute indication that something is complicated or inefficient.
        rtkwe 3y ago
        Yeah for the longest time Coinbase was mainly hosting the relatively old coins that tended to be closer to commodities than securities. While they were doing that it's a very different regulatory environment.
      - JohnFen 3y ago
        > The fact that the sec let Coinbase last this long is proof the system is over complicated and cannot be maintained efficiently. I disagree with this assessment, but reasonable people can hold differing opinions on this.
        knewter 3y ago
        "you can run a company for nearly a decade while spending a great deal on lawyers talking to the government the whole time and still have no clue if your business is legal"
    - 3y ago
  - ikiris 3y ago
    This is never how the law has worked
    - mrguyorama 3y ago
      It's so much worse than that. "Laws should be exhaustively comprehensive" is a completely unworkable system. You cannot predict every possible combination of context and law, and attempting to do so would be literal combinatorics explosion. People who push that kind of system know this, and want the system to be hamstrung by exactly that situation. They want a system that can only outlaw their new, explicitly harmful scheme after an entire game of politics in congress, such that they could prevent something becoming law by encouraging the already bad stonewalling in congress. They want government agencies to be so bound up by poorly written law that they cannot administrate at all.
      - pylua 3y ago
        I just want a system that is predictable , objective and that works quickly . Saying that there are flaws in the current system simply offends the gate keepers of the system.
        ikiris 3y ago
        I just want a billion dollars and a unicorn. We both have to work in reality.
  - pjc50 3y ago
    > There should just be a letter of the law , analytical meaning branch of government. This is called "a court". (There is a particular phrase for "the law is unclear so I'm going to sue the regulator in advance to determine if something is legal", but I've forgotten it. It's linked to judicial review)
- semiquaver 3y ago
  > The SEC is not part of the executive branch. You are mistaken. The SEC is very much a part of the executive branch. > It is an independent agency So is the CIA. This just is a term of art for a particular type of executive agency distinct from a cabinet department with additional insulation from political control. SEC commissioners are nominated by POTUS and confirmed by the senate, a characteristic unique to the leaders of executive branch departments. https://en.m.wikipedia.org/wiki/Independent_agencies_of_the_United_States_government https://en.m.wikipedia.org/wiki/Independent_agencies_of_the_...
  - JohnFen 3y ago
    > The SEC is very much a part of the executive branch. Not according to the government, and they're the horse's mouth on this. > SEC commissioners are nominated by POTUS and confirmed by the senate This is correct, but not really to the point.
    - semiquaver 3y ago
      > Not according to the government, and they're the horse's mouth on this. You seem to be referencing some specific statement that you didn't provide. I'm guessing that you are confused about the phrase "independent agency". Or possibly you're remembering cases like Lucia v. SEC where certain SEC staff were (unsuccessfully) challenged as not conforming with the Article II appointments clause. The insulation of these sort of agencies from direct presidential oversight continues to be a source of debate in conservative legal circles, but where these agencies sit in the constitutional order is not remotely controversial. They're not part of the judiciary and they're not part of Congress so they can only be part of the executive. > The executive branch also includes executive departments, independent agencies, and other boards, commissions, and committees. https://www.usa.gov/branches-of-government https://www.usa.gov/branches-of-government > The SEC is an independent federal agency https://www.sec.gov/strategic-plan/about https://www.sec.gov/strategic-plan/about QED. More to the point, congress lacks the ability under the constitution to create government structures outside the three branches. The language establishing the SEC makes very clear that its structure conforms with how Article II defines the executive branch: > There is hereby established a Securities and Exchange Commission (hereinafter referred to as the ‘Commission’) to be composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate. https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-1885.pdf https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-188... > he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: https://constitution.congress.gov/constitution/article-2/ https://constitution.congress.gov/constitution/article-2/ The SEC is established and appropriated by congress, staffed by people who receive government paychecks, led by presidential appointees, etc etc. I'd be interested to know whether you think it's either - not part of the US government - part of a different branch - part of the US government outside a branch that the constitution specifies
burnte 3y ago
> It is scary to me how much legislating is done by these government bodies inside the (executive ?) branch. Congress explicitly delegated these authorities to these agencies as part of the administrative state overhaul in the beginning of the 20th century. The reason was to help become more responsive, and less beholden to daily politics by putting neutral experts in charge, and by and large it works. Safety and security shouldn't be party politics.
- pylua 3y ago
  That is good history to know , thank you. It does feel like to me in this case, this is a failure due the government being slow to respond and unable to produce an interpretation of the law consistent with a completely analytical meaning letter of the law, in my opinion.
  - deleted 3y ago
    [deleted]
  - toast0 3y ago
    Delegate to agencies is a way for government to be less slow. In the case where congress is faster, they can pass new laws with more specifics and less left to the executive branch, but that's often not very fast.
  - Hermitian909 3y ago
    > unable to produce an interpretation of the law consistent with a completely analytical meaning letter of the law The legal profession writ large (including legislators) consider this a feature, not a bug. The reason this is the legal profession's opinion essentially three points: 1. You can't write "bug free" laws and regulations 2. Fixing mistakes in laws and regulations is slow 3. The amount of damage someone can do with unintended legal cover can be catastrophic (imagine if I found a legal loophole to take possession of your home!) So this has been chosen as the "least bad" solution. My personal opinion is that the SEC is acting within the spirit of the law which is what we should expect and if congress wanted to change things they should pass a new law.
deleted 3y ago
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meepmorp 3y ago
Why? I think it makes sense to delegate rule making to specialized agencies that are specifically staffed for handling the kind of regulation they're meant to apply. I don't doubt that the process could be improved, but insulating decisions about how to protect investors from political interference sounds like a fine idea.
- pylua 3y ago
  Originally well intentioned , I think we are seeing it break down here. I am not a lawyer, but as a layman I am not convinced by the sec and their interpretation of things. I am inclined to think that they will bow to political pressure and what is expedient for the current legislature instead of looking at things in a completely objective analytical manner.
GartzenDeHaes 3y ago
It's called regulating. For areas that require complex administration, Congress passes laws that express its intent and directs the administrating agency to make rules that implement their intent. Congress can amend these laws to expand, contract, or direct the regulations made by these agencies.
- pylua 3y ago
  Vague laws that take years of law to interpret then passed to an agency that does not have the same context of laws passed 100 years ago. If the system worked and the sec felt this way Coinbase should have never existed . This is proof that it is not working.
  - GartzenDeHaes 3y ago
    There were plenty of scams and scammers 100 years ago. Doing it with a computer doesn't change anything.
  - mrguyorama 3y ago
    There's nothing about a crypto token that make the economics different though. That's the whole point. That's why law from 1930 is relevant. Crypto isn't economic innovation.
mort96 3y ago
I may be confused here. But to my understanding, the role of the executive branch is to enforce laws. In this situation, there exists a law that was passed by Congress. Coinbase is breaking that law. Is it not the executive branch's role to enforce that law?
semiquaver 3y ago
> clear requirements in black and white terms of what is and isn’t acceptable. I’ll give you the benefit of the doubt and assume you have been misled by this frequently made claim. It’s just not true. The requirements have been clearly stated for a long time, they’re just not what people in the crypto space want to hear, so they pretend the guidance and law doesn’t exist. This document dates from 2019 and lays out in detail what constitutes a security wrt cryptocurrency from the SEC’s perspective. They’ve been quite clear about this for a long time. The relevant case law has been settled for 70 years. https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an... The SEC has repeatedly and publicly stated in no uncertain terms, what the definition of a security is and also identified specific coins traded on coinbase that they believe to be securities. Here’s an example from last year from an insider trading case. https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1... > For example, on November 12, 2021, Ishan learned that Coinbase would soon announce the listing of the crypto asset POWR. As alleged further below, POWR was a crypto asset security > A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include “investment contract,” i.e., if it constitutes an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others. > Coinbase planned to announce the listing of crypto asset AMP on its platform. As alleged further below, AMP was a crypto asset security. > Coinbase intended to announce on July 14 that the RLY token would be listed on its platform. As alleged further below, RLY was a crypto asset security. Rather than accept those statements and obey the law coinbase chose to ramp up the PR offensive instead. The real issue is that cryptocurrency companies hoped they had found a loophole —they wish the law and SEC guidance weren’t what it is, and they keep dishonestly claiming a lack of clarity exists in the hope that doing so will change things.
- kjs3 3y ago
  I wish I could upvote this a couple of dozen times, because it's really the core of the issue. All this "the SEC won't give us guidance" is theater.
  - 3y ago

gurchik 3y ago

Sorry for the stupid questions, I really know very little about crypto. With that said, > Gensler firmly maintains that the vast majority of crypto assets are securities, with the exception of Bitcoin Why? From an article on Reuters[1], > Bitcoin is not considered a security because its anonymous and open-source origins mean investor profits are not dependent on the efforts of developers or managers, said Carol Goforth, a law professor at the University of Arkansas. How is this different from, say, Ethereum? What about when changes to the Bitcoin network are done (either directly e.g. bug fixes or indirectly such as hard forking), does this not count as "efforts of developers or managers?" ^1: https://www.reuters.com/business/finance/what-makes-crypto-asset-security-us-2023-06-07/ https://www.reuters.com/business/finance/what-makes-crypto-a...

super256 3y ago
Ethereum ICO‘d and therefore doesn’t pass the Howey test.
- everfree 3y ago
  The Howey test is applied to the current status of an asset. It doesn't take an asset's origins into consideration. If you believe that Ethereum currently represents "an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others", then it is a security. If not, then not.
  - babyshake 3y ago
    Is there a statute of limitations or a similar concept? For example, hypothetically would it be possible 30 years after the Ethereum ICO for the SEC to declare that ETH has been a security the entire time? As of now, it's been almost 10 years since the Ethereum ICO.
    - yokem55 3y ago
      5 years unless there is evidence of active fraud.

triceratops 3y ago

Can anyone summarize what the stakes are here? Is a loss for Coinbase a company-ending event? Or is being forced to register all the coins that aren't BTC or ETH a costly regulatory burden? What are the implications of registering all these coins as securities? Does it affect whether they can be offered to non-accredited investors? How expensive is it? Who bears the costs?

civilitty 3y ago
> Is a loss for Coinbase a company-ending event? We don’t do that kind of thing in America except for the occasional Enron when extreme levels of fraud are involved and someone takes out California’s electrical grid to boost profits. IANAL but these SEC violations don’t seem to fit the bill.
- triceratops 3y ago
  See: https://en.wikipedia.org/wiki/Aereo https://en.wikipedia.org/wiki/Aereo The courts found their business model and technology fundamentally illegal.
- paulpauper 3y ago
  how about for-profit colleges . many were forced to shutdown due to lawsuits and major regulation under Obama
- adsfgiodsnrio 3y ago
  "OK, securities exchange, you can continue operating as long as you shut down the securities exchange." I suppose they can keep the office cafeteria open.
habitue 3y ago
The issue is that if most coins are securities, then that means in order to operate, Coinbase has to become a registered securities exchange in order for it to do what it does. The regulations for securities exchanges are onerous, but also many of them aren't possible to comply with for crypto because of how it works. So the SEC is saying "You are an unregistered securities exchange" And coinbase is saying "Please give some kind of route by which we could possibly be compliant given the nature of cryptocurrencies" And the SEC is saying "We have no obligation to give you such a route, just as we have no obligation to provide such a route for criminal black markets" Who you interpret as being unreasonable here depends on if you think crypto is closer to the black market example, or if it's closer to being like regular securities but with a few tweaks to the rules to make it work.

crazygringo 3y ago

> Coinbase, as with most crypto platforms, has decided it wants to simultaneously operate as an exchange, broker-dealer, and clearing agency. These three functions — bringing together securities orders for buyers and sellers, trading securities on behalf of others, and intermediating trades — are typically required to be separate due to conflicts of interest that emerge when one entity controls all of them. Coinbase would need to fundamentally change its business model in order to separate these functions, and thus far seems unwilling to do so. “[Crypto intermediary compliance is] not just a matter of ‘paying lip service to [the] desire to comply with applicable laws’ or seeking a bunch of meetings with the SEC during which you’re unwilling to make the changes needed to comply with the securities laws,” said Gensler in a speech a few days ago. Can someone knowledgeable here clarify if this really is the crux of the problem? The previous HN thread seemed to mainly be of the opinion that Coinbase wasn't registering the non-Bitcoin crypto, but that the problem was the SEC wasn't giving clear guidance on whether they needed to be. But I don't understand what ramifications that has. Why didn't Coinbase just register everything non-Bitcoin? Would that have limited/destroyed its business model in the way the quote above suggests? Edit: thank you so much to all the replies so far! This is incredibly helpful.

unyttigfjelltol 3y ago
The problem is that issuers of crypto don't file S-1's and the like. They apparently claim it's because the investment involved in crypto is technology-enforced scarcity and not any interest in an actual business. They might propose instead publishing a white paper about how their technology works. Since there's no satisfactory registration, there's no legitimate industry. The Coinbase situation is a follow-on consequence.
- unyttigfjelltol 3y ago
  Which, when you think about it makes sense. Why would consumer protection folks waive consumer protections simply because the would-be issuer confirmed there was no intrinsic value in the offering?
  - 3y ago

everfree 3y ago

I stopped reading the article when it started comparing cryptocurrency exchanges to the business of selling heroin. No matter your opinion on the issue, that's just alarmist nonsense. I agree that it's reasonable to apply existing securities laws to cryptocurrency, and I agree that "but they let us go public" is a bad argument, but Gensler's SEC has also been intentionally obtuse about how those securities laws should apply to cryptocurrency. It's not a company's job to go to court over ambiguous regulations, it's the SEC's job to actually research what they are regulating and put out a comprehensive framework for how they make their regulatory determinations, because the Howey Test is so subjective that it's leaving companies guessing on the cutting edge of public programmable assets. Look at the UK's upcoming crypto bills for an example of commonsense regulation that protects consumers and is in everyone's best interest. The contrast between it and the US's approach is striking.

deleted 3y ago
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ceejayoz 3y ago
> Gensler's SEC has also been intentionally obtuse about how those securities laws should apply to cryptocurrency. No. Coinbase’s complaint is that the SEC has been clear, but that they don’t like the clear answer. https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpndWQm/78f95afa4f0ebaaefb303e1a4f172d03/Coinbase_petition_for_SEC_rulemaking.pdf https://assets.ctfassets.net/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn... > Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital tokens are securities, and has asked issuers and exchanges that offer, sell, and trade them to come in and register. We disagree that the majority of digital assets are securities. For those digital assets that are securities, registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens.
- nickff 3y ago
  Well, the SEC told everyone to register, but didn't actually tell them how they could. From what has been made public, it seems like the SEC strung Coinbase along for about two years, then said that their application was inadequate (without stating any criteria).

paulpauper 3y ago

Congress has been far from united on the crypto issue thus far, particularly in the wake of the FTX collapse, and the various drafts of legislation that have been proposed have largely been dead on arrival. But Coinbase has put a significant amount of time, effort, and money into lobbying: in 2022, they spent $3.4 million lobbying the crypto industry (on top of Binance’s $1.1 million spent lobbying in the US, all coming together to amount to around $11.9 million in lobbying efforts from the industry that year). This seems like very little relative to a company worth tens of billions of dollars?

donavanm 3y ago
For context the largest tech companies in the world spend in the range of $5-20M on lobbying each year. So these crypto cos spending $1-3M is either very high or in line with expectations, depending on your perspective. For AMZN, my employer, $20M is pretty small compared to the $514B revenue and $10B in profit (excluding the rivian charge). Coinbase spending $3m does seem high in that comparison.
anonymouskimmer 3y ago
Lobbying isn't bribes to congresspeople. It's hiring some specialists who are known to congresspeople in order to sell those congresspeople a line. After a point more money doesn't buy you that much more benefit.

RestlessMind 3y ago

I like reasoned critiques of crypto. Heck, I think many crypto actors are scammers and should be punished. However, a lot of crypto is legit and this piece reeks of bias. Some examples: - comparison with heroin - wtf? To extend that ridiculous analogy, it would be akin to FDA approving heroin based products (similar to how SEC approved Bitcoin ETF in 2021) and then going after heroin. What message is SEC trying to deliver? That holding Bitcoin via futures-based ETF is okay but crypto itself is scam? Kafka couldn't have invented a better plot - scare quotes when saying “tyrannical” Gary Gensler - tyrannical is an apt description of Gary. See the previous point about kafkaesque treatment. Also see the congressional testimony where the dude didn't even have a clear answer about the status of Ethereum, which is bigger in market cap than 90% of S&P500. Talk about protecting American consumers!

nickff 3y ago
I suspect that Gensler was obfuscating intentionally when asked about cryptocurrency. Modern regulators seem to prefer retrospective punishment over prospective advice and regulation.
- pseudo0 3y ago
  It seems like a massive regulatory failure to let Coinbase IPO if there are the sort of glaring issues they claim. Coinbase has a market cap of around $10 billion, and is owned by retail investors as part of standard index funds. If it goes to zero tomorrow because of the SEC, that is billions of dollars in losses that could have been avoided by more responsible regulatory behavior. Meanwhile insiders will have cashed in through salary, stock sales, etc.
  - shagie 3y ago
    Here is Coinbase's S1 - https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/699359de-d974-4ad9-b7f6-5031f2f432d3.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/699359d... And the S1A https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c9475761-bae4-4556-b8f3-b6d74e47b5f0.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/c947576... In particular: > Bitcoin sparked a revolution by proving the ability to create digital scarcity: a unique and finite digital asset whose ownership could be proven with certainty. This innovation laid the foundation for an open financial system. Today, all forms of value – from those natively created online such as in-game digital goods to traditional securities like equities and bonds – can be represented digitally, as crypto assets. Like the bits of data that power the internet, these crypto assets can be dynamically transmitted, stored, and programmed to serve the needs of an increasingly digital and globally interconnected economy. > Today, we enable customers around the world to store their savings in a wide range of crypto assets, including Bitcoin and USD Coin, and to instantly transfer value globally with the tap of a finger on a smartphone. We provide companies with new ways to transact, incentivize, and reward their users, from offering compounding rewards on savings that pay out by the second to compensating users for virtually completing tasks through global micropayments. The claim is that they're selling assets and traditional securities that are represented digitally. And they acknowledge the risks of future regulation: > • We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition. > ... > • A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected. The 'i's are dotted and the 't's are crossed. Is the SEC to evaluate those future possibilities that the assets they claim (in addition to Bitcoin) may be considered securities? Coinbase said its a risk and, well, yep - it is.

throwaway22032 3y ago

It's not clear to me why almost any of these coins even need to be listed by regulated exchanges. Couldn't they just stick with BTCUSD and a few others then let decentralized exchanges deal with crypto-crypto trade? Would they really lose that much business? I always assumed (though I've never actually checked, it doesn't interest me that much) that almost all of the shitcoins were like, the long tail few % of revenue for these businesses, and it feels like that's where all the risk is, since Bitcoin is generally recognised as a commodity. I mean, if needs must, spin off the shitcoin stuff into its own entity?

yokem55 3y ago
You could probably address 99% of the market only selling BTC, a stable coin, and small amounts of Eth needed for gas and then any other trading could happen on dex's. And you could make that a modestly profitable business if you run a tight ship. But you won't build an empire doing that.
nuclx 3y ago
It's just a first step. Transferring crypto from a DEX to a fiat offramp may be restricted or illegal in the future.

avsteele 3y ago

All other arguments aside: the bottom line is that everyone who invested in crypto did it with the knowledge that Coinbase wasn't a securities broker. The SEC just can't imagine a world where customers are fine without their 'protection'. We don't want your help, we don't need your help. GO away.

anonymouskimmer 3y ago
> The SEC just can't imagine a world where customers are fine without their 'protection'. We don't want your help, we don't need your help. GO away. This is all well and good until you mess up the economic system for the rest of us. The Great Depression didn't just hit those with stock certificates. And the Great Recession didn't just hit those with mortgage-backed securities.
- landoftheice 3y ago
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dotnet00 3y ago
You might be sufficiently informed on the topic and sufficiently good at managing your crypto, but if you've seen the whining after any crypto company has turned out to be a scam or has otherwise failed, it's pretty obvious that most people cannot be trusted with the ability to participate in an unregulated crypto market. In a way, the mere existence of these big centralized exchanges is indication enough of the fact that the average person cannot be trusted to handle crypto without government backing them.
itairal 3y ago
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anonymouskimmer 3y ago

Off-topic but addressing the article, text which can be highlighted with a mouse should also be obviously a link (underlined, or in an aqua font in this case) if it functions as a hyperlink. > On June 5, the SEC filed thirteen charges against crypto giant Binance, companies under its control, and its CEO Changpeng “CZ” Zhao. The charges against the companies involve unregistered offers of securities and investment schemes; failing to register with the SEC as an exchange, broker, broker-dealer, or clearing agency; and making materially false and misleading statements to investors. Two of the charges are against CZ specifically, as the control person over Binance and Binance.US.

loveparade 3y ago

I don't understand how anyone can take this obviously super-biased articles from someone who has made it their career to hate anything crypto-related seriously. It's full of personal jabs and bias like "my guess is that it’s going to involve a lot of PR stunts and headline-grabbing" It's obvious that there is zero incentive here to do any real reporting or research. It's just clickbaity headlines and statements appealing to people who hate crypto. Of course it's hidden under a veil of neutrality with a biased selection of links that nobody actually clicks on scattered throughout the article.

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_fizz_buzz_ 3y ago
The bias is obvious, but is there anything factually wrong in the article?
- loveparade 3y ago
  It's not about what's wrong, it's about the selection bias of what's included in such an article. You can write a technically "factually correct" article by only including statements that heavily favor one side of the argument, which is what's done here. Also, "facts" in topics that touch politics and law are complicated. This is not like science where measurement can be unambiguous. Most facts in topics such as these like these are not scientific facts, but highly politicized opinions that are ambiguous and open to interpretation. Much of the legal code is (on purpose) open to interpretation, including what's a security and what's not. When trying to understand a topic like this the IMO best thing you can do is seek our content from people who have a somewhat neutral stance. Don't listen to a16z who want to pump all their crypto tokens. Don't listen to Molly White whose whole career depends on bashing anything crypto-related.
  - refulgentis 3y ago
    That's called "expressing an opinion." What world would we live in if the very fact we wanted to talk about something meant we couldn't? You're welcome to write a rebuttal but you're attacking the messenger repeatedly instead. She wrote a cogent concise article that describes what's going on in the real world. Now, we await your brilliance, as soon as you're done repeatedly telling us it's "her career."

jerry1979 3y ago

I'm confused why the SEC is suing specifically over DASH (2014) but not specifically Ethereum (2015). https://www.sec.gov/litigation/complaints/2023/comp-pr2023-102.pdf https://www.sec.gov/litigation/complaints/2023/comp-pr2023-1...

personjerry 3y ago

If I used Coinbase to purchase ETH (and it's still held there) should I be moving those assets right about now?

latchkey 3y ago
Self custody is always the best route, if you know what you're doing. If you have zero clue on how to set up and secure a wallet and don't care to do it, Coinbase is probably an ok option, for now. Not financial advice, but smart move to be buying ETH.
noitpmeder 3y ago
Yes -- if you are concerned about coinbase losing this deal you should be moving all assets (coins, dollars, ...) out.
jacquesm 3y ago
Yesterday would be fine too. In general you should not hold a balance anywhere but in a bank that is backed by the Federal Deposit Insurance Corporation (FDIC) or your local equivalent. If it's pocket change then it doesn't really matter.
- Dylan16807 3y ago
  FDIC is great, sure. But there's a significant difference in risk in having $500 in Amazon gift cards versus that store in the dying mall that's probably going to be gone in six months. And it's reasonable to try to figure out which one Coinbase is. There are many value that are neither trivial nor worth the effort of upgrading from pretty safe storage to completely safe storage.
  - jacquesm 3y ago
    These have nothing to do with each other.
    - Dylan16807 3y ago

KingOfCoders 3y ago

The reason why many like crypto is that it's the purest form of speculation. Stocks, pork halves, the $, all are more or less tied to reality and influenced by reality - even gold. Crypto isn't which makes it so beautiful in the eyes of some.

joanne123 3y ago

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kaycey2022 3y ago

I think its pretty shitty to want an entire sector of possibilities to just collapse and die just because some people are greedy.

kredd 3y ago
Pardon my ignorance, but what possibilities? It’s been more than 10 years since BTC was promoted as “peer-to-peer money transfer with no middle men!”, but in all western countries this idea has been rejected by public due to limitations posed by blockchain itself (e.g. no reversals). The past 6 years, all I’ve seen is either ICO scams, or casino-like trading which impacts the poor mostly (same concept as why lottery is being bought by poorer population at large). We can’t even say “oh, it’s not even mainstream yet!”, as I’m sure almost everyone has heard of Coinbase, FTX, Crypto.com and etc. through superbowl ads or casual bar conversations. So, I get a bit confused nowadays when people say “US will lose by not adopting the technology”, since there’s nothing really to adopt yet.
- kaycey2022 3y ago
  I can think of many use cases that may be non trivial to get running. For example, if crypto had a privacy layer, which a lot of people are working on right now, it could easily enable a secondary market in digital goods, subscriptions etc. Imagine you bought a 1 year subscription to something which is locked behind some credentials. 2 months down the line you feel you're not using it a lot and would like to get some of your money back by trading those credentials. Crypto networks would enable a secondary market for those. Sure it can be done with web2 but crypto presents another possible solution. It could also be a way to organise open source software communities around paid work that can incentivise activity around the preferences of the donor, in addition to the current model of free volunteer work. Even NFTs could be used as an abstraction for the access of digital properties. Their popular use for distributing art became a limiting distraction. 10 years since BTC is hardly enough time for anything. As more sophisticated features are developed for the underlying networks, good use cases will come. A lot of oxygen was sucked out by use cases involving speculative investment. The gambling aspect of crypto is never going away and I don’t think its a problem. Some responsibility has to be taken by the people who chose to trust scammers with their money. In fact at the height of the NFT craze people who are public influencer types were openly scamming and rug pulling marks on fucking youtube. How many of them got arrested? It is right to ask for action against criminals. But instead of that you have US government agencies trying to shut down an entire sector of commerce just because some guy made important people in seats of power look bad. None of this is being done to protect the people who lost money. I don't think crypto is valuable for things like poverty alleviation etc. That is a challenge which has to be taken up by individual countries. Anyone who says crypto is going to save the world should be looked at with as much scepticism as the tech founders 10 years back who were claiming to do the same thing. Crypto is super interesting technology that is one of the few tools that can fight the inexorable oligarchization and centralisation of all things in this world. It can make a lot of people very rich by providing them with opportunities that wouldn’t be possible under the current system of monopolies and governments controlling access to everything. For that reason it doesn’t deserve to die. In any case, SEC can only set back the adoption of crypto networks in the US. But as tech proliferates around the world, cutting crypto off from the home of “tech” will not kill crypto. It just pushes the timetable back a little bit.

SilverBirch 3y ago

Look guys, people are allowed to write articles with an opinion you disagree with. If you want to tell us all you stopped reading when a comparison was that you feel is unfair take a moment to reflect that really, that just makes you look silly and tells us nothing about the article. It's honestly the weakest form of critique. I think she raises some really salient points, and it looks extremely bad that the CEO of Coinbase is making clearly specious arguments. I don't believe the SEC's approval of his filing says anything about the regulations around this securities law. I think he thinks he can win some cheap PR points with people who don't know any better. Acting like that does indicate that he probably doesn't have any real defense. People don't make bad arguments if they have good ones available to them.

al_be_back 3y ago

>> “Remember: The SEC reviewed our business and allowed us to become a public company in 2021.” If it's normal for a startup to patch their software to keep up-to-date with changes/time, I wouldn't be surprised if SEC / Gov / Justice Dept updated their Views/Position with time!

MrPatan 3y ago

So we're killing crypto again. Okay! This time around just buy some while it's cheap. You may learn a thing or two. About finance, and about yourself. At 50k you remembered checking it when it was 25k, and regretted not buying. Well, it's 25k again, lucky you! But wait! Is this me trying to help you? Shill my bags? Or trying to reverse-psyops you into staying a nocoiner? Take your pick!

LatteLazy 3y ago

The point here is that if the SEC is letting illegal businesses go public, it is doing really badly at it's job. If that is the case, it might be legal for the SEC to act that way, it would not make coinbase legal (permission to go public is not a get-out-of-jail-free card), but it would be really really damning for SEC leadership. It would be like a cop giving a speeding ticket to a kidnapper and then letting them go because he's "just on traffic duty". That would be perfectly legal, that would not make kidnapping ok, but I'd still fire the cop for gross gross negligence.

yobid20 3y ago

Will coinbase pull out of US? I hope not. Limited options for ny users to exchange with usd.

_fat_santa 3y ago
No. Part of the reason they went public is to show: “hey look we’re a publicly traded American company, not some legal entity operating out of a Caribbean country”. Them remaining an American company is a big part of their pitch for choosing them over others.

miracle2k 3y ago

When approving the S-1, the SEC was asked to review a business, not one selling filtration technology, but one selling illegal securities, well within their area of expertise. I think Americans should fairly expect their regulators to be clear enough about the rules that the very securities regulator, whose job in large part it is to protect retail investors, not allow a company who is in the business of selling illegal securities to go public, and then take multiple years to file suit. Any crypto sceptic who does not see a problem with this is tainted by their priors.

q1w2 3y ago
Think about this in a more practical mindset. While crypto was growing and experimenting and not causing great harm, the regulators were happy to let it do its thing. The moment major losses occurred due to large scale fraud collapses, THAT is when the regulators decided to pay more attention and look for rules that might be getting broken. Moreover, with the increased use of crypto by nation states such as North Korea, Russia, Iran, Hamas, etc... to evade sanctions and launder money, and the general lack of any material crypto economy, then parts of the gov't, in general, are starting to think the show needs to end for crypto - and are talking to regulators to shut down exchanges. That is why there are no "productive conversations" between Coinbase and regulators. The regulators don't want to give them any valid methods of operating - because they NOW don't want them to operate at all.
itsoktocry 3y ago
>whose job in large part it is to protect retail investors, not allow a company who is in the business of selling illegal securities to go public, and then take multiple years to file suit First, it's not ideal, but an investigation takes time. Second, had the SEC said "we're not allowing you to go public because we think your business might be breaking ambiguous laws" it would have destroyed Coinbase with a combination of reputuational damage and the inability to raise money to operate. All for something that might be true but was unproven? That doesn't sound ideal, either. By the way, love the "anyone who thinks otherwise is tainted" bit at the end, it truly speaks to our political climate.
- 3y ago

alexnewman 3y ago

- Just because something is a commodity doesn’t mean it’s not a security - just because something is a currency doesn’t mean it’s not a security There’s a reason why we separated exchanges, brokerages and clearing houses. Now it seems Binance is touching customer funds. Perhaps we just can cefi and use defi in crypto. If people want fiat on ramp they get a circle or tether account and redeem there

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