Cryptocurrency like Beanie Babies, says Coinbase in US regulator’s lawsuit
A federal judge in Manhattan on Wednesday grilled Coinbase and the US securities regulator about their divergent views on whether and when digital assets are securities, in a case closely watched by the cryptocurrency industry.
Coinbase vs. SEC: Divergent Views on Cryptocurrencies
Coinbase, the largest US crypto exchange, is facing a lawsuit from the Securities and Exchange Commission (SEC) which alleges that the exchange is flouting regulations and selling unregistered securities. The case, which took place in Manhattan, revolves around the classification of digital assets as securities.
Coinbase argues that cryptocurrencies are not securities but rather akin to collectibles like Beanie Babies. They claim that buying digital coins is more similar to purchasing collectibles rather than purchasing stakes in a company.
However, the SEC disagrees with this perspective. The SEC asserts that when individuals purchase crypto tokens, they are essentially investing in the enterprise behind the token. According to the SEC, the tokens support a larger 'enterprise' and are comparable to investment contracts.
The case has significant implications for the cryptocurrency industry, as it may help clarify the SEC's jurisdiction over digital assets.
Legal Precedent and the Definition of Securities
Judge Katherine Polk Failla presided over the case and questioned both Coinbase and the SEC about the legal precedent and attributes associated with crypto tokens. The judge's ruling will play a crucial role in determining the SEC's jurisdiction in the sector.
The SEC sued Coinbase in June, accusing the exchange of facilitating the trading of several crypto tokens without proper registration. Coinbase, on the other hand, argues that crypto assets do not meet the definition of an investment contract.
The definition of securities relies on the Securities Act of 1933 and a US Supreme Court case that determines whether an investment product qualifies as a security. If people are contracting to invest in a common enterprise with the expectation of profit, it is considered a security. Coinbase contests that crypto assets differ from traditional investment products like stocks and bonds.
The SEC countered Coinbase's argument by highlighting the distinction between purchasing collectibles and buying digital assets as investments. However, Judge Failla expressed concerns about expanding the definition of securities.
Implications of the Lawsuit and Additional Allegations
The outcome of the Coinbase vs. SEC lawsuit will impact the crypto industry by clarifying regulatory jurisdiction. The SEC has been actively pursuing cases against various crypto entities, including trading platforms and clearing activity firms.
In addition to the allegations regarding the classification of cryptocurrencies, the SEC also targeted Coinbase's 'staking' program. This program involves pooling assets to verify activity on blockchain networks and providing rewards to customers. The SEC claims that the staking program should have been registered with the agency.
Ultimately, the judge did not make a ruling immediately after the hearing and is carefully considering the arguments presented by both sides. The case highlights the ongoing debate surrounding the regulatory treatment of cryptocurrencies and the need for clarity in defining digital assets.
