As the ongoing court case with Coinbase shows, though, part of the problem is that the SEC might not be using reasonable standards. It's letting the pitcher call the balls and strikes.
The only reasonable standard the crypto true believers would accept from the US government is that cryptocurrency tokens and derivatives are 100% unregulated and nontaxable by any current or future statute.
That's a nice ad hominem attack you've made there, but it isn't actually unreasonable to argue that Bitcoin and certain other currencies like it are not securities. Heck, even the SEC has said as much. It's even more reasonable to argue that things like NFTs are more like digital baseball cards than securities.
> it isn't actually unreasonable to argue that Bitcoin and certain other currencies like it are not securities
It’s not. But it’s clear the industry needs supervision, and it isn’t really worth the time drafting federal legislation. The SEC keeping the most egregious behaviour checked, e.g. policing positioning with retail investors, is the best worst option for now.
The CFTC seems to think it would be perfectly competent to handle the situation too. I don't think the only options are federal legislation or the (allegedly) overreaching SEC.
> CFTC seems to think it would be perfectly competent to handle the situation too
The way these businesses are run, it probably does too. A good amount of effort in finance goes into avoiding unneeded regulatory duplication. But if you’re a you’re a bank you get both the FDIC and SEC, a public drug manufacturer the SEC and FDA; if you’re selling crypto through your brokerage app, the SEC and CFTC.
Perhaps at the level of exchanges, sure, but for each individual token, it can't be both a commodity and a security at the same time, and the CFTC and SEC keep stepping on each other's toes.
I guess that opens a whole different can of worms in the discussion, because I actually think that supports my point, that it sounds like a good idea but doesn't actually accomplish anything positive. All it ends up doing is hamstringing the companies that do want to do things the right way, because they can't compete with the companies who are snubbing all the rules anyway.
Anyone who was working at Coinbase during the rise of Binance or FTX can tell you everybody knew they were playing outside the rules. Once you know how hard it is to do things right, it's easy to see when some upstart flies in and starts gobbling up market share that they're cutting corners.
It took 7 years for Binance and CZ to get fined like they finally did. FTX might even still be operating if SBF hadn't panicked and filed for bankruptcy. Riding those guys out was one of Coinbase's major challenges, and competitors who didn't have established market share and teams couldn't even effectively enter the market and compete with those players.
Regulation often sounds like a good idea to honest people, but it doesn't account for the reality that many people don't care at all about playing by anybody else's rules.
I don't think that's an ad-hominem attack at all. The entire point of crypocurrency from jump was to escape the "reckless inflation/deflation of fiat currency", fiat currency meaning state-sponsored currency. The goal was to create an object that would hold value outside the traditional financial sector, similar to things like gold. I think the only real problem is that the crypto community took the several decades of the various governments world-wide not giving a shit about their $0.0004 coins as admission by those governments that they were beyond regulation and not, as would be a far simpler explanation, not worth their time to regulate. And once it was worth their time, it was regulated.
To be clear, I don't know or really care if these stupid things are securities or what. But I do know that you're going to need a lot better of an argument than an "um actshually" to get the Feds off your ass. Y'all went and achieved your dream: a parallel financial system. Now Uncle Sam's comin' to get his cut.
> The goal was to create an object that would hold value outside the traditional financial sector, similar to things like gold.
Agree with most of your comment, just to say that this was not the goal as originally described by Nakamoto, but rather an ex-post justification for crypto when it blatantly failed in reaching the specific goals it set out to achieve.
The thing that sold many people on the idea of crypto was that in their minds, government couldn't regulate it or use a central bank to impact its value. I'm not sure why they thought this (maybe "because computers") but one way (through securities or commodities laws) or the other (new legislation), they're going to regulate it.
There is no accusation of fraud here. What seems to be happening is, as with similar enforcement actions, Robinhood is being dinged for trading securities improperly, without ticking off the legal requirements for notification, tracking, authentication, etc...
The idea that crypto assets aren't "securities" and thus not subject to SEC regulation is, and always has been, laughable. Virtually everyone trading these things is doing so to engage in arbitrage of fungible assets to make money. I mean, come on.
The vast majority of arbitrage of fungible assets happens in commodities, not securities. The SEC regulates securities. The CFTC regulates commodities.
Why not? It is highly litigated and still abundantly unclear whether certain cryptocurrencies are securities or commodities. That's the whole point of these legal battles. If it was clear, they would not be ongoing.
based on the definition of what a security and what a commodity, it should be abundantly clear to anyone over the age of 5 what crypto falls under:
Commodities are consumable goods that get transformed through usage in industrial or commercial processes. Gold and silver can be transformed into jewelry. Securities, on the other hand, grant holders the right to periodic benefits like dividends, coupons, principal repayments and potential profit shares.
How are you consuming crypto? What commercial or industrial process are being used?
> Commodities are consumable goods that get transformed through usage in industrial or commercial processes. Gold and silver can be transformed into jewelry. Securities, on the other hand, grant holders the right to periodic benefits like dividends, coupons, principal repayments and potential profit shares.
> How are you consuming crypto? What commercial or industrial process are being used?
What rights does holding bitcoin confer to the holder? I get no dividends, coupons, principle repayments or potential profit shares.
We’ve nicely entered why this argument still rages on. It doesn’t fit cleanly into either definition.
> Bitcoin is considered a commodity and is the underlying asset in bitcoin futures contracts… Bitcoin futures contracts — like other commodity futures contracts such as corn futures, market index futures, or gold futures — are regulated by the CFTC and must trade on CFTC-regulated exchanges.
The fact that you can create a crypto more easily today has nothing to do with whether or not crypto is a commodity (though I suspect that point is not really why you made this comment).
It's the fact that there's an overwhelming number of exchanges that willingly accept crypto from other exchanges coupled with the fact that anyone can mine/produce crypto. The moment that there were two places to get BTC that accept BTC from each other in exchange for money, it was a commodity.
> In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
I am pretty sure you can get BTC from any exchange and sell it on any other exchange. Whereas, with stocks, you generally cannot as a retail investor.
That is, I suppose, what makes crypto a commodity at its core.
> The vast majority of arbitrage of fungible assets happens in commodities, not securities.
Yeah, I'm gonna say no to that. I don't have numbers but if total trading volume on commodities is anything more than a tiny fraction of stock/derivatives trading on any given day I eat my proverbial hat.
Regardless, "The CFTC needs to sue us, not the SEC" isn't the argument being made by Robinhood either.
Again, that's wrong. The CFTC absolutely does not handle regulation of options and bond funds and ETFs, etc... You seem to be invoking this "commodities" thing as a trick, and that's not how it works. We've seen this repeatably now where the SEC has to come at crypto outfits with a cluebat and explain to them (in court!) that yes: crypto assets are securities. Why do you really think it's going to be different this time?
"The Commodity Futures Trading Commission is an independent U.S. government agency that regulates the U.S. derivatives markets, including futures, options, and swaps."
Also from their official website: 20 quadrillion per week in settled trades. Too lazy to look up the equities numbers, but I would bet everything I own it's lower.
Also from the CFTC's website:
"Bitcoin is considered a commodity and is the underlying asset in bitcoin futures contracts… Bitcoin futures contracts — like other commodity futures contracts such as corn futures, market index futures, or gold futures — are regulated by the CFTC and must trade on CFTC-regulated exchanges."
I should have said "the derivatives in question" instead of simply "derivatives".
My point stands: OP claimed that most trading volume happens in securities and it simply does not. I highly doubt securities amount to more than the $20 quadrillion settled in the CFTC's realm last week.
I'm not claiming the jurisdictions of the CFTC and SEC are mutually exclusive. My point stands.
If a listed firm does something bad (anything, really), but doesn't immediately disclose it (as is usually the case), it can then be sued later - not directly for doing the bad thing, but indirectly for not having disclosed it (that being the securities fraud).
They've been reprimanded by a federal judge for blatant extrajudicial power grabs like this one. None of their huge cases claiming various cryptocurrencies are securities have succeeded, except in the super cut-and-dry cases like ICOs and centralized schemes that clearly pass the Howey test.
> in the specific context of staking and promising returns, not crypto in general
Every ruling in the lower courts on these issues will be narrow. The SEC has been on a winning streak recently. The only major kerfuffle was the judge not ruling that XRP is a security, though Torres still ruled in the SEC's favour broadly, and the ruling has been widely criticised (not by industry people, but senior lawyers) for being likely to be overturned on appeal.
RH has been working hard to get regulatory approval, similar to Coinbase. I don’t think anything drastic can be done if they are found to be in the wrong, considering they’ve been proactive with getting regulation in place
If you have the ability to withdraw to your own custody, I'd recommend it if you're reasonably technically literate (which I'm assuming because you're here).
If you don't have the ability to withdraw it, you have crypto IOU's, which is a layer riskier than actually having the assets already.
I don't believe that at this point there are still people who have their cryptos with them. These people already have “most wanted” style documentaries and almost all cryptos forums have in their FAQs “Not your keys, not your coins" warnings.
> Any idea what this could mean for those holding crypto on Robinhood?
Robinhood ain't risking much I think. Look at what the ex CEO of Binance got: a personal fine of $50m (while he's believed to be worth about $30 billion), a $4bn fine for Binance and three months in prison (where he'll be the richest inmate in the US).
glad to see the same regulatory agency that snored through the gamestop fiasco has suddenly taken notice of the crypto wing of the same predatory fintech that should have faced a congressional hearing years ago.
Doesn’t really explain why Robinhood thought the framework was unworkable, and why they thought throwing up their hands and ignoring the SEC would result in anything but enforcement.
I dont think cryptos are securities;
especially given that they are decentralized, which is the whole point. Which would make these points of the howie test moot.
> 2) In a common enterprise. + 4) Due to the managerial efforts of others.
The expectation of profit is tricky, something like ethereum could argue that ethereum itself is used for network precipitation, gwei or gas. Also, wouldn't they have to out and say "PAY US FOR THESE AND WE WILL REWARD YOU WITH DOLLAR PROFITS"
Also, isn't crypto just beanie baby tulip bulbs. Aren't those commodities?
64 comments
[ 3.2 ms ] story [ 147 ms ] threadThough I'm guessing most crypto users wouldn't enjoy that.
It’s not. But it’s clear the industry needs supervision, and it isn’t really worth the time drafting federal legislation. The SEC keeping the most egregious behaviour checked, e.g. policing positioning with retail investors, is the best worst option for now.
The way these businesses are run, it probably does too. A good amount of effort in finance goes into avoiding unneeded regulatory duplication. But if you’re a you’re a bank you get both the FDIC and SEC, a public drug manufacturer the SEC and FDA; if you’re selling crypto through your brokerage app, the SEC and CFTC.
Why not? Mixed swaps are dual regulated, for instance [1].
[1] https://katten.com/CFTC-SEC-Finalize-Swap-Product-Definition...
The point is enforcement. We ban weapons in some areas despite murder being illegal.
Anyone who was working at Coinbase during the rise of Binance or FTX can tell you everybody knew they were playing outside the rules. Once you know how hard it is to do things right, it's easy to see when some upstart flies in and starts gobbling up market share that they're cutting corners.
It took 7 years for Binance and CZ to get fined like they finally did. FTX might even still be operating if SBF hadn't panicked and filed for bankruptcy. Riding those guys out was one of Coinbase's major challenges, and competitors who didn't have established market share and teams couldn't even effectively enter the market and compete with those players.
Regulation often sounds like a good idea to honest people, but it doesn't account for the reality that many people don't care at all about playing by anybody else's rules.
To be clear, I don't know or really care if these stupid things are securities or what. But I do know that you're going to need a lot better of an argument than an "um actshually" to get the Feds off your ass. Y'all went and achieved your dream: a parallel financial system. Now Uncle Sam's comin' to get his cut.
Agree with most of your comment, just to say that this was not the goal as originally described by Nakamoto, but rather an ex-post justification for crypto when it blatantly failed in reaching the specific goals it set out to achieve.
The idea that crypto assets aren't "securities" and thus not subject to SEC regulation is, and always has been, laughable. Virtually everyone trading these things is doing so to engage in arbitrage of fungible assets to make money. I mean, come on.
Commodities are consumable goods that get transformed through usage in industrial or commercial processes. Gold and silver can be transformed into jewelry. Securities, on the other hand, grant holders the right to periodic benefits like dividends, coupons, principal repayments and potential profit shares.
How are you consuming crypto? What commercial or industrial process are being used?
> How are you consuming crypto? What commercial or industrial process are being used?
What rights does holding bitcoin confer to the holder? I get no dividends, coupons, principle repayments or potential profit shares.
We’ve nicely entered why this argument still rages on. It doesn’t fit cleanly into either definition.
> Bitcoin is considered a commodity and is the underlying asset in bitcoin futures contracts… Bitcoin futures contracts — like other commodity futures contracts such as corn futures, market index futures, or gold futures — are regulated by the CFTC and must trade on CFTC-regulated exchanges.
https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/B...
Today, you can spin up your own shit coin with basically a few clicks.
It's the fact that there's an overwhelming number of exchanges that willingly accept crypto from other exchanges coupled with the fact that anyone can mine/produce crypto. The moment that there were two places to get BTC that accept BTC from each other in exchange for money, it was a commodity.
> In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
I am pretty sure you can get BTC from any exchange and sell it on any other exchange. Whereas, with stocks, you generally cannot as a retail investor.
That is, I suppose, what makes crypto a commodity at its core.
Yeah, I'm gonna say no to that. I don't have numbers but if total trading volume on commodities is anything more than a tiny fraction of stock/derivatives trading on any given day I eat my proverbial hat.
Regardless, "The CFTC needs to sue us, not the SEC" isn't the argument being made by Robinhood either.
It does matter, because they aren't doing anything wrong if these crypto assets are considered commodities and not securities.
Also, just because a government agency is suing you, that doesn't mean it has any legal or moral imperative. I don't see your point.
"The Commodity Futures Trading Commission is an independent U.S. government agency that regulates the U.S. derivatives markets, including futures, options, and swaps."
Also from their official website: 20 quadrillion per week in settled trades. Too lazy to look up the equities numbers, but I would bet everything I own it's lower.
Also from the CFTC's website:
"Bitcoin is considered a commodity and is the underlying asset in bitcoin futures contracts… Bitcoin futures contracts — like other commodity futures contracts such as corn futures, market index futures, or gold futures — are regulated by the CFTC and must trade on CFTC-regulated exchanges."
SEC and CFTC are both claiming jurisdiction over Bitcoin.
Most issuers try very hard to keep their instrument in one bucket to avoid the kind of issues that cryptocurrencies are dealing with.
My point stands: OP claimed that most trading volume happens in securities and it simply does not. I highly doubt securities amount to more than the $20 quadrillion settled in the CFTC's realm last week.
I'm not claiming the jurisdictions of the CFTC and SEC are mutually exclusive. My point stands.
Except, ya know.. the courts.
If a listed firm does something bad (anything, really), but doesn't immediately disclose it (as is usually the case), it can then be sued later - not directly for doing the bad thing, but indirectly for not having disclosed it (that being the securities fraud).
A federal judge found the SEC has jurisdiction over crypto and is sending Coinbase’s case to a jury trial [1].
[1] https://www.cnbc.com/2024/03/27/sec-scores-big-win-in-lawsui...
Every ruling in the lower courts on these issues will be narrow. The SEC has been on a winning streak recently. The only major kerfuffle was the judge not ruling that XRP is a security, though Torres still ruled in the SEC's favour broadly, and the ruling has been widely criticised (not by industry people, but senior lawyers) for being likely to be overturned on appeal.
If you don't have the ability to withdraw it, you have crypto IOU's, which is a layer riskier than actually having the assets already.
Robinhood ain't risking much I think. Look at what the ex CEO of Binance got: a personal fine of $50m (while he's believed to be worth about $30 billion), a $4bn fine for Binance and three months in prison (where he'll be the richest inmate in the US).
Meanwhile Binance keeps working.
https://twitter.com/mattwalshinbos/status/178746618973775060...
> 2) In a common enterprise. + 4) Due to the managerial efforts of others.
The expectation of profit is tricky, something like ethereum could argue that ethereum itself is used for network precipitation, gwei or gas. Also, wouldn't they have to out and say "PAY US FOR THESE AND WE WILL REWARD YOU WITH DOLLAR PROFITS"
Also, isn't crypto just beanie baby tulip bulbs. Aren't those commodities?
https://cc.bingj.com/cache.aspx?d=3675526860418&w=NaVLru25dt...