This disgrace was not the first time, and only those who closely follow the agenda will remember when it first happened. At the beginning of last year, the GBTC hearing was held, and we covered the details with the headline “SEC is disgraced again”. At the end of the day, after months had passed, the SEC lost the case. More importantly, this defeat led to the approval of Spot Bitcoin ETFs.
SEC Loses Ground
We are seeing similar events to what happened in the Grayscale case last year. During the GBTC hearing, the Judge did not receive a clear answer from the SEC on why it approved futures ETFs while rejecting spot Bitcoin ETFs. As a result, the SEC was largely overturned and had to repeat the same things. Eventually, Gensler had to give ETF approvals as a result of this defeat.
Now, in the Coinbase case, the Judge stated that he could not understand why all altcoins were defined as securities. He also impliedly asked the SEC why it did not create rules specific to cryptocurrencies, a new technology. He mentioned that he was concerned about the very broad scope of securities laws.
As a result of the case, the SEC’s blanket classification of altcoins as securities may be prevented.
Details of the Hearing
- The SEC argued that Coinbase operated as an unregistered exchange, broker-dealer, and clearing agency. This claim places Coinbase in a unique and potentially unfair category, as the SEC admits that no other entity is approved to operate in all these roles simultaneously. This lack of precedent could show that the SEC applies rules inconsistently or has created new standards specifically for Coinbase, which weakens the fairness and predictability of regulatory practice.
- The SEC’s reliance on the Howey test to claim that at least 13 tokens on Coinbase are securities highlights a significant issue: the test’s applicability to the crypto context is not clear. The SEC’s interpretation stretches the traditional understanding of securities and potentially encompasses a wide range of digital tokens. This broad application could be seen as overreach, creating uncertainty and fear about what is considered a security in the crypto market.
- The Judge’s comparison of staking to earning interest in a bank account casts doubt on the SEC’s stance that staking constitutes a securities transaction. The SEC’s inability to clearly distinguish these activities may indicate a lack of understanding of the nuances and economic functions of crypto technologies.
- The Judge’s concern about the SEC’s argument being too broad is significant. If the SEC’s interpretation is accepted, it could inadvertently bring a wide array of digital assets and even possibly other collectibles under securities regulation. This could be seen as an excessive expansion of the SEC’s regulatory authority, potentially hindering innovation and investment in the crypto sector.
- The discussion about rescission rights for token buyers if tokens are deemed unregistered securities shows a significant flaw in the SEC’s position.
- The comparison with collectible products like Beanie Babies and the Judge’s skepticism towards the SEC’s focus on the “common enterprise” aspect reflect a possible disconnect between the SEC’s views and market realities. This suggests that the SEC may be applying old frameworks to a new and evolving market, which could be seen as regulatory rigidity.
- The reference to Senator Lummis’s opposition and the discussion about Congress’s intent in the Howey test underscore the lack of clear legal guidance on digital assets. The SEC’s position could be seen as an attempt to fill this legislative gap, but without clear direction from Congress, such efforts could appear misguided or overly enthusiastic.
These details shared by MikeMac serve as a broad summary of the case.
