Coinbase claims there is "no path to registration". But that is not the SEC's problem. If Coinbase runs its operation in a way that precludes it from being able to comply with securities laws, then that is a problem with Coinbase's operation, not the SEC.
Ultimately whether or not something is a security is determined by the courts, not the SEC. The statute states that a security can be an investment contract. However "investment contract" is not defined. The definition is left to the courts.
That's why the test for a security is based on a definition used in a 1946 decision, SEC v W.J. Howey.
The SEC can state they believe crypto is a security. "Crypto experts" can state they believe crypto is not a security. But only a court can decide what actually is a security. The SEC cannot tell Coinbase if their products are securities, only a court can do that. The SEC can tell Coinbase that it thinks their products are securities. The SEC can decide to enforce the securities laws at its own discretion.^1 With the Wells notice Coinbase knows unequivocally that the SEC thinks its products could be securities.
The ball is in Coinbase's court.
The question is, then, if the SEC suggests that crypto is a security, or even that it ever might be one, what is the best course of action for a "crypto entrepreneur".
(a) stop
(b) continue
(c) comply
Coinbase and others are choosing (b). That is their decision to make. Maybe they think they can win against the SEC in court.
One of the most well-known treatise authors on the subject of securities regulation, along with Louis Loss and Joel Seligman, is Thomas Lee Hazen at UNC Chapel Hill.
He has weighed in on crypto. For example, see
Hazen, T. L. (2018). Virtual or Crypto Currencies and the Securities Laws. SSRN Electronic Journal. doi:10.2139/ssrn.3257449
"Although some have argued that virtual or crypto currencies are not securities,36 The better view is that virtual or crypto currency transactions often, if not always, are subject to the securities laws.37"
Personally I cannot read Hazen's article and conclude that it's prudent to assume crypto is not subject to securities laws. But then I am not being paid to argue in crypto's favour.
IMO, much if not all of what we read in defense of crypto is written by folks who stand to gain from its popularity. That is not just limited to people who have spent money on it.
1. It does not need the CFTC's permission. For example, it served Paxos Trust with a Wells notice and Paxos stopped minting BUSD. CFTC might think BUSD is a commodity but that did not stop the SEC from acting to protect the public.
Coinbase claims there is "no path to registration". But that is not the SEC's problem. If Coinbase runs its operation in a way that precludes it from being able to comply with securities laws, then that is a problem with Coinbase's operation, not the SEC.
Ultimately whether or not something is a security is determined by the courts, not the SEC. The statute states that a security can be an investment contract. However "investment contract" is not defined. The definition is left to the courts.
That's why the test for a security is based on a definition used in a 1946 decision, SEC v W.J. Howey.
The SEC can state they believe crypto is a security. "Crypto experts" can state they believe crypto is not a security. But only a court can decide what actually is a security. The SEC cannot tell Coinbase if their products are securities, only a court can do that. The SEC can tell Coinbase that it thinks their products are securities. The SEC can decide to enforce the securities laws at its own discretion.^1 With the Wells notice Coinbase knows unequivocally that the SEC thinks its products could be securities.
The ball is in Coinbase's court.
The question is, then, if the SEC suggests that crypto is a security, or even that it ever might be one, what is the best course of action for a "crypto entrepreneur".
(a) stop
(b) continue
(c) comply
Coinbase and others are choosing (b). That is their decision to make. Maybe they think they can win against the SEC in court.
One of the most well-known treatise authors on the subject of securities regulation, along with Louis Loss and Joel Seligman, is Thomas Lee Hazen at UNC Chapel Hill.
He has weighed in on crypto. For example, see
Hazen, T. L. (2018). Virtual or Crypto Currencies and the Securities Laws. SSRN Electronic Journal. doi:10.2139/ssrn.3257449
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3257449
"Although some have argued that virtual or crypto currencies are not securities,36 The better view is that virtual or crypto currency transactions often, if not always, are subject to the securities laws.37"
Personally I cannot read Hazen's article and conclude that it's prudent to assume crypto is not subject to securities laws. But then I am not being paid to argue in crypto's favour.
IMO, much if not all of what we read in defense of crypto is written by folks who stand to gain from its popularity. That is not just limited to people who have spent money on it.
1. It does not need the CFTC's permission. For example, it served Paxos Trust with a Wells notice and Paxos stopped minting BUSD. CFTC might think BUSD is a commodity but that did not stop the SEC from acting to protect the public.