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

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

#41

Post by nickff »

triceratops wrote: post #19
habitue wrote: post #17

Earlier quoted context omitted.

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 gi…

> aren't possible to comply with for crypto because of how it works Why is this? Thanks for the other detail you provided.

The SEC expects the disclosure of various types of information which are impossible to create/state in the case of a decentralized security/commodity/currency like crypto.

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

#42

Post by unyttigfjelltol »

crazygringo wrote: post #12

> 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…

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.

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

#43

Post by crazygringo »

everfree wrote: post #13

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 shoul…

I was taken aback at first as well but then I realized I was misunderstanding the point.

The article isn't saying crypto is harmful like heroin at all -- it's just using heroin as an arbitrary example of something illegal. It's clear to everyone that selling heroin is illegal, in a way that e.g. insider trading perhaps isn't.

So it's not alarmist nonsense, it's just a vivid analogy.

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

#44

Post by ceejayoz »

nickff wrote: post #37
ceejayoz wrote: post #30

Earlier quoted context omitted.

> 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/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn... > Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital t…

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).

I promise you, a procedure to become a registered securities exchange exists (demonstrably, as registered securities exchanges exist widely) and Coinbase has enough people and money to find it.

(I’m not the expert to hire for this, but https://www.investopedia.com/terms/s/sec-form-8-a.asp looks promising.)

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

#45

Post by donavanm »

paulpauper wrote: post #20

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 com…

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.

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

#46

Post by yieldcrv »

crazygringo wrote: post #12

> 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…

> Why didn't Coinbase just register everything non-Bitcoin?

The organizations that created the assets have to register them as securities, Coinbase didn't create the assets.

A broker-dealer (a securities exchange) can only trade registered securities, broker-dealers have to register to exist. So even if Coinbase went through the process of registering as a broker dealer (to be a securities exchange), they could not trade unregistered crypto securities, and cannot unilaterally register things they didn't create as securities.

Registered crypto securities are a mixture of non-existent, or not the things people want to trade. There are zero popular registered crypto securities.

Those organizations with those "unregistered securities" quote on quote, also don't believe they are creating securities at all, just digital products, cryptoassets. A distinct asset class. This should be possible to do compliantly, but it is also not clear how to do so or where the line is.

Regardless, those organizations have not been approached by the SEC saying "hey you created unregistered securities and sold them, we're suing you".

The SEC has indeed tried a couple of those cases against different crypto assets and their creators and had mixed results, the well funded ones are dragging the SEC through court for half a decade now, for a single case. While the number of crypto assets continues to balloon every single day.

So the SEC changed its strategy recently and started suing exchanges using circular logic, claiming assets that they never said were securities to be securities and saying "these are unregistered securities and you are trading them in violation of Federal Securities laws", having never proved in court that these were securities.

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

#47

Post by unyttigfjelltol »

unyttigfjelltol wrote: post #42
crazygringo wrote: post #12

> 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…

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 conseq…

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?

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

#48

Post by shagie »

crazygringo wrote: post #12

> 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…

> Why didn't Coinbase just register everything non-Bitcoin? Would that have someone limited/destroyed its business model in the way the quote above suggests?

Coinbase wouldn't be the one to register the security - the company offering the security would be the one registering it. Coinbase may have some securities of its own - but it is unlikely that it would be able to provide the necessary information for much of them or take on the necessary responsibilities for providing the auditing.

https://www.investor.gov/introduction-investing/investing-ba...

    The registration forms a company files with the SEC provide significant information, including:

    A description of the company's properties and business;
    A description of the security to be offered for sale;
    Information about the management of the company; and
    Financial statements certified by independent accountants.
https://www.americanbar.org/groups/business_law/resources/bu...

> In order to register a security under the Securities Act, a company must file a registration statement with the SEC. Typically the type of registration statement used for an initial public offering will be a Form S-1 Registration Statement (Form S-1). A Form S-1 includes two parts (Part I and Part II). Part I is the prospectus, the legal offering or “selling” document. In the prospectus, the “issuer” of the securities must describe in the prospectus important facts about its business operations, financial condition, results of operations, risk factors, and management. It must also include audited financial statements. The prospectus must be delivered to everyone who buys the securities, as well as anyone who is made an offer to purchase the securities. Part II contains additional information that an issuer does not have to deliver to investors but must file with the SEC, such as copies of material contracts, signatures of management and other representations.

Most organizations providing cryptocurrency based securities are unable or unwilling to provide the required information.

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

#49

Post by everfree »

ceejayoz wrote: post #30
everfree wrote: post #13

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 shoul…

> 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/c5bd0wqjc7v0/5NRidtW8lvwVEfSHpn... > Rather than initiate new rulemaking, Chair Gensler has repeatedly stated through speeches and testimony that the vast majority of digital t…

"Vast majority" isn't clarity.

"Here is how we interpret the Howey test in relation to cryptocurrencies, and here is a ten step process for how we determine whether each particular cryptocurrency is a security" is clarity.

Can you imagine if, back when the SEC first formed in 1934, they put out a press release saying "the vast majority of stocks are securities and need to come register, but not The Bank Of New York, their stock is not a security". Imagine that the SEC didn't elaborate on why they didn't consider that one stock to not be a security, and they didn't elaborate on the reasoning process that led them to that decision.

That's what's happening right now, but with cryptocurrencies.

The 2023 SEC is very different from the 1934 SEC.

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

#50

Post by babyshake »

everfree wrote: post #24
super256 wrote: post #4

Earlier quoted context omitted.

Ethereum ICO‘d and therefore doesn’t pass the Howey test.

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.

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.
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