The SEC filing that no one saw coming…
So, this came out of left field:
The SEC just explicitly listed nine cryptos as securities (for the first time ever).
Not in a public announcement, but in court.
You'll probably hear a fair deal of chatter about this over the coming days, so here's what's happening...
The SEC listed nine tokens (AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM) as securities, in an insider trading suit they've filed against an ex-Coinbase employee.
We've hit you with a few deeper dives on securities vs. commodities recently, so we'll spare you and leave it at this:
Being labeled a security brings more government oversight, and no cryptocurrency wants that.
The general crux of this story, is this:
While everyone knew regulation was going to come eventually - they assumed the rules were going to be set, before they were enforced.
Right now it's as if your dad is scolding you for drinking Coke, claiming 'we're a Pepsi family, we always have been.'
...but you had no idea. It was never explicitly said. Maybe it was implied?
But...if it were such a big deal, you'd assume clear rules would've been outlined for you to follow from the outset.
It's a case of regulation by enforcement, not announcement.
In the interest of fairness:
It's not like the rules on what defines a security aren't known. They've been around since the 40's, and many cryptocurrencies fit the mold.
The ruleset is known as 'The Howey Test' and it goes a little something like this:
'If you invest money in a common enterprise, with a reasonable expectation of profit to be returned to you as a result of the efforts of others...it's a security.'
Or better yet:
You put the money in → you trust someone else to do the work → you're told to expect profits → you have yourself a security.
So what next?
Coinbase are using the opportunity to petition the SEC, asking them to:
"Develop a workable regulatory framework for digital asset securities guided by formal procedures and a public notice-and-comment process"
I.e. 'Tell us the rules, so we can follow them.'
It's a fair enough request.
One that would be very much welcomed by most in the space.
