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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

#11

Post by burnte »

pylua wrote: post #2

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.

> 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.

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

#12

Post by crazygringo »

> 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.

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

#13

Post by everfree »

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.

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

#14

Post by triceratops »

civilitty wrote: post #9
triceratops wrote: post #5

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?

> 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.

See: https://en.wikipedia.org/wiki/Aereo

The courts found their business model and technology fundamentally illegal.

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

#15

Post by pylua »

burnte wrote: post #11
pylua wrote: post #2

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.

> 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 sec…

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.

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

#16

Post by [deleted] »

pylua wrote: post #2

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.

[deleted]

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

#17

Post by habitue »

triceratops wrote: post #5

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?

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.

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

#18

Post by meepmorp »

pylua wrote: post #2

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.

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.

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

#19

Post by triceratops »

habitue wrote: post #17
triceratops wrote: post #5

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?

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.

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

#20

Post by paulpauper »

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?

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