Coinbase issued Wells notice by SEC

In 1946, SEC v W.J. Howey Co. (328 U.S. 293) ruled the meaning of “security” as used in the provision of § 2(1) of the Securities Act of 1933 defining “security” as : “For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”

There are three components:

1. expectation of profits

2. a common enterprise

3. depends “solely” for its success on the efforts of others.

  - Criteria #2 is debatable
  - They don't meet criteria #3
  - Or they don't meet criteria #4

Coinbase believes that all of the tokens they list are securities. The SEC will need to tell Coinbase specifically what it believes they are doing wrong. At the very least, if they eventually file suit they will need to make a specific accusation.

It feels like a lot of people have knee-jerk crypto=bad reactions. But read their press release - it really sounds like Coinbase is trying their best to comply with U.S. regulation, and the regulators aren't doing their jobs.

And last - For digital assets that do look like securities, the SEC provides no way to register them, and thus vaguely implies that Americans can't own digital securities. That's not their decision to make - they either have to do their job and regulate crypto securities, or get congress to ban them.

But nowadays crypto is being pitched as an investment to the layperson who doesn’t understand the risks and isn’t being told those risks by the exchanges. It’s those folks the SEC is trying to protect.

That and prevention of larger market issues that can arise from unregulated financial services, ie FTX

Securities are regulated even more tightly because it's *really* easy to commit fraud and fleece people of their money by lying about investments. Capitalism works because most people trust that they can make investments without being defrauded.

With hookers, non-profit donations, political donations, drugs, overpriced art, etc., the consumer knows more or less what they're getting. Lots of crypto coins are scams, and it's reasonable for the government to regulate them

That said, as Coinbase complains, the SEC is doing a really bad job of regulating crypto securities in a usable way.

What if I buy some sneakers thinking I'm going to flip them and then I lose money?