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If one were to rely on a few select headlines and the discussions on Crypto Twitter, they could be led to believe that Coinbase, the most prominent publicly-traded cryptocurrency exchange, now regards Bitcoin's value to be on par with that of a Beanie Baby. Astonishingly, this is a comparison that the exchange itself made, and it was even presented within an official legal document.
In response to the lawsuit filed by the U.S. Securities and Exchange Commission (SEC), Coinbase appears to have reversed its longstanding stance on cryptocurrency being the future of finance. The legal filing, dated August 4, 2023, initially went unnoticed but has now garnered significant attention. Notably, the document states:
“On Coinbase’s secondary-market exchange and through Prime, there is no investment of money coupled with a promise of future delivery of anything. There is an asset sale. That’s it. It is akin to the sale of a parcel of land, the value of which may fluctuate after the sale. Or a condo in a new development. Or an American Girl Doll, or a Beanie Baby, or a baseball card.”
Did Coinbase perhaps overlook the opportunity to leverage the Barbie craze when it comes to the American Girl Doll?
However, the exchange hasn't actually abandoned crypto. In fact, it has been further elaborating on the point that the leading securities regulatory authority of the nation, headed by Gary Gensler and known as the SEC, doesn't possess the authority to legally pursue legal action against the California-based firm. This assertion is based on the premise that the assets traded on Coinbase do not fall under the category of securities.
Specifically, in this instance, the exchange is engaged in a dispute regarding the legality of its secondary trading service, Prime. Delving into the intricacies of securities law or its application to cryptocurrencies isn't within my expertise—I'm not a legal professional, and there's a wealth of better-informed resources available on the subject, especially considering how discussions within the crypto sphere predominantly revolve around securities law.
However, I must mention that Coinbase's point in this regard, particularly concerning "transactions on Coinbase and through Prime," closely aligns with a recent court ruling in the SEC's legal battle against Ripple Labs. The ruling concluded that the majority of sales on the secondary market do not qualify as "investment contracts" or constitute a securities offering.
Purchasing cryptocurrency through Coinbase entails acquiring the cryptocurrency itself, without obtaining ownership in the company or the rights to its future profits (a key element assessed by the influential Howey Test in making such determinations). Similar to the scenario with Barbie dolls, Beanie Babies, or even fine art, buyers might anticipate an increase in the asset's value, particularly driven by subsequent endeavors or contributions from entities like Mattel or a Picasso, which could enhance their respective reputations.
Reasonable individuals can and have held differing opinions. Take, for example, Brian Frye, a former conceptual artist who has transitioned into a law professor. He contends that practically any tangible asset could be classified as a security at the discretion of the SEC. He has even challenged the SEC to take legal action against him. This challenge stems from his creation of legal documents/artwork, which he sells as NFTs (Non-Fungible Tokens). These NFTs essentially imply potential future profits to buyers.
In numerous instances, it is indeed reasonable to classify cryptocurrencies as securities, particularly when cryptocurrency issuers are actively engaged in such practices. For example, when a startup seeking operational funds vends tokens to hedge funds or other entities recognized as "qualified investors" (as seen with Ripple Labs), the classification as securities becomes highly justifiable.
In essence, Coinbase isn't primarily engaged in such activities. Its main role revolves around providing chances for potential buyers to obtain cryptocurrencies. The inherent characteristics and differences of assets like bitcoin and XRP become significant when contrasted with conventional securities such as stocks or bonds. While the value of these assets often sees gains from exchange listings, decentralized and unrestricted networks don't depend on listings for the widespread adoption of these assets.
Similarly, Coinbase doesn't actually require me to vigorously defend it. However, for those who doubt cryptocurrency and claim to prioritize transparency and honesty above all, the assertion that Coinbase is capitulating in the face of the SEC is unequivocally inaccurate. (At last, a response to the timeless query of who oversees the overseers?)
While Coinbase is not without its flaws, it's important to note that even recently, the exchange's public relations division needed to rectify a situation. This occurred after CEO Brian Armstrong indicated that the SEC had requested the delisting of all cryptocurrencies except bitcoin. This story quickly spread, potentially due to a media mistake or a misguided effort to promote a certain "narrative." Unfortunately, this narrative gained traction rapidly and could have negatively influenced the court's perspective in the ongoing legal dispute.
This is a company I have previously voiced concerns about, and it's probable that my reservations will persist. This is largely due to the fact that, akin to other cryptocurrency exchanges, it enables and even encourages some of the most detrimental behavior within the crypto space. Here, traders engage in what can be described as zero-sum games, all in pursuit of amassing wealth. While I might not directly label Coinbase as a dubious operation, the challenge it faces in diversifying its revenue streams away from trading fees links it inevitably to what are colloquially known as "the degens" - regardless of Coinbase's earnest discussions about the transformative potential of cryptocurrencies.
Nearly every instance of someone gaining profits from trading cryptocurrencies comes at the cost of another person who invested in the same system. This phenomenon occurs due to the fact that these intangible assets seldom possess any tangible real-world associations and frequently offer minimal societal benefits. While numerous cryptocurrencies are conceived with specific intentions, a significant portion of them end up unused, failing to make any substantial contribution towards improving the world.
From one perspective, the accumulation of capital solely for the purpose of further accumulation is the very reason why cryptocurrencies do not qualify as securities. They stand as a direct reflection of the inherent value perceived within the network, rather than being tied to platforms like Coinbase or Binance, where they are acquired. A similar analogy can be drawn with Beanie Babies – if this weren't the case, wouldn't Toys R Us still thrive today?
As a point of interest, I had a conversation a couple of years back with a trader who accurately predicted the peak of the Beanie Baby bubble. This trader, humorously referred to as the "Beanie Meanie," pointed out that the slow adoption of cryptocurrencies isn't particularly astonishing when considering his belief that it typically requires around 30 years to establish a functional secondary market for novelty items.
Does the pace of this timeframe accelerate when cryptocurrency proves to be more functional than a doll? Or does it signify that even obscure terms like "pepeyieldunibotsatoshidoge" will eventually attract a buyer driven by nostalgia or rarity? Could we anticipate a scenario where the late Supreme Court Justice William John Howey, despite resting in peace, resurfaces as the ultimate critic of blockchain? (I acknowledge there's room for improvement to surpass "Beanie Meanie.")
Ultimately, whether you hold negative sentiments towards cryptocurrency or harbor resentment towards Coinbase, one cannot deny that Coinbase lacks faith in the potential of crypto. Engaging in the intricate and legally complex process of introducing a layer 2 solution would be utterly irrational if the belief were merely that crypto is a trivial novelty destined to be forgotten and neglected.
