More like sketchy behavior coming out of Coinbase. Coinbase terms:
Acknowledgement of Risk. By opting into Lend, you are acknowledging the following: Lend is not a checking account nor a bank savings account, and Coinbase is not a bank. By participating in Lend, you are making a loan of your eligible Digital Currency to Coinbase, Coinbase is your counterparty and you will have only a contract claim against Coinbase for the return of Loaned Digital Currency. As with any loan transaction, you could lose all your Loaned Digital Currency if we are unable to repay your loan. Coinbase does not provide you with collateral for the Loaned Digital Currency. You acknowledge that while you have the right to make a Return Request at any time, if Coinbase becomes insolvent or bankrupt or is placed in receivership your Loaned Digital Currency may be lost. Your Loaned Digital Currency is not protected by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or other insurance.
Coinbase may use Loaned Digital Currency in its sole discretion, including uses which generate returns for Coinbase in excess of the Lend APY, which Coinbase is entitled to as compensation for Lend. Any returns generated by the use of Loaned Digital Currency are not returned to you as part of Lend interest. Therefore, although the interest rate will be determined in accordance with Section 2, the interest rate is determined by Coinbase and Coinbase may have a conflict of interest with you in setting the Interest Rate.
OK. So Coinbase wants to borrow your money, invest it in something else, not tell you what that something else is, and hopefully pay you back. In the real world, they're selling you a bond or commercial paper. That's a security.[1]
Morrison and Forster lists these requirements for commercial paper that doesn't have to be registered as a security.
- Negotiable (No)
- Prime quality (No)
- Eligible for discount at Federal Reserve banks (No)
- Not ordinarily purchased by the general public (No)
- Used to facilitate “current transactions” (No)
- Maturity of nine months or less with no automatic roll-over. (No)
Nope, doesn't qualify.
Coinbase is trying to pretend to be a bank without qualifying as a bank. They have to know this; they're a public company and have now filed SEC filings for two whole quarters.
Ok - seems strange, how can lending be a security?
The naïveté of this statement by CB beggars belief. If you ask people for money now in exchange for more money later you’re creating a security. The law has been on the books since 1933.
Is it possible this sort of disingenuous attitude is an act? It seemed to work for Uber and Airbnb. They skirted by on legal technicalities until they had enough VC-funded legal firepower to tip the scales in their favour.
A security is by definition a tradable instrument. Your bank account is not tradable, and therefore is not a security, despite the fact that you are lending the bank money and interest is paid in return.
What the actual fuck? Never once have I said that these wouldn't be regulated, nor has the Coinbase CEO, and I have no fucking clue how you would jump to that conclusion. Jesus Christ...what a fucking moronic straw man.
There are over a dozen financial regulatory bodies that are not the SEC. FINRA is the most likely choice here, considering the fact that they already regulate securities lending.
He's right. You don't have the option to choose which laws apply to you, and your attempt to explain why is irrelevant, as the law does not support your claimed definition
The SEC is getting involved because they are the correct people to handle this.
This is not something an outsider should be trying to pan as someone else's wheelhouse.
No, he's not right because his entire argument was a straw man, trying to claim that I was sovereign citizen-ing financial regulation.
The Coinbase CEO is not an idiot. He has been very clear that this would be a regulated instrument. The SEC has no jurisdiction here. Either this is an interest-bearing currency lending account, for which the FDIC would be the regulatory body, or it is a securities lending account, for which FINRA would be the regulatory body. The SEC has not ever regulated securities lending or interest bearing accounts. They have also never had any regulatory authority over non-tradable financial instruments. They're literally the least likely agency to get this turf, which is why industry insiders like Matt Levine are shocked by this. It's only complete outsiders like you that think the SEC has any stake here, because you have a completely facile understand of the jurisdictions of the financial regulatory bodies in the US.
Do you have a source for Matt "Everything is Securities Fraud" Levine being shocked by this? He seems like the last person I'd expect to be surprised by the SEC's broad mandate.
> But a lending platform that says “hey put your Bitcoins into this pool and we will give you a 10% return on them” probably is offering a security.
Also
> A collateralized stablecoin is basically a money market fund, money market funds are regulated by the SEC and their shares are securities, so the SEC naturally wants to treat stablecoins as securities and regulate them. I am less convinced that this view is correct, 2 but it’s probably the SEC’s view
and
> The speech is not exhaustive, and I am perhaps wrong in interpreting it to mean “everything in crypto is a security until proven otherwise.”
Now, maybe he misspoke and didn't mean shocked but rather meant that Levine disagreed with categorizing it as a security, but given that first quote I think even that extremely kind reading of his comment would have no standing.
He claimed that you are making the claim that someone can merely opt out of regulation by deciding that it does not apply to them. That is what it would mean to "soverign citizen" things - those folks are people who appear to genuinely believe that if they state, in their opinion clearly, why the law doesn't apply to them, that it really doesn't. They frequently get dragged to jail in chains, ranting about how the tassles on a flag mean it's an admiralty flag, and as a result, some string of hedge logic means it doesn't apply on a technicality.
I agree with his impression of you. You appear to be making random, incorrect, unjustified claims, and then drawing from those claims the impression that the law doesn't apply in context, and the actual people who run this part of the legal system are too dumb to understand what you understand, and aren't the right people to handle it.
Here are some literal quotes of you, which I believe support this perspective on what you're saying.
.
> A security is by definition a tradable instrument. Your bank account is not tradable
Three things:
1. That is not the correct definition of a security, no. It both gets things wrong, cites irrelevant things as if they were key, makes correct factual claims in a way that makes clear they're not well understood, and omits defining details. This like saying "a car is a wooden box with a radio and a minimum of two wheels, at least one of which a steering wheel."
2. Yes, your bank account very much is tradeable. I would say "please go learn about securitization," but since you're trying to define what a security is, it seems likely you'll say "I already know about it," unaware that securitization is the process by which something that didn't used to be a security is turned into one, and that the United States has had two different financial crises in the last 20 years caused directly by bank accounts being tradeable.
3. The sub-average NPR listener can explain this. Maybe befriend one and ask.
.
> trying to claim that I was sovereign citizen-ing financial regulation.
You're the guy saying "The SEC is wrong and they don't even do this and here's why and I have no reference and when you say I'm wrong I'm going to ignore you and make fun of you and not address your points."
I guess I don't think he's incorrect about you, frankly.
Vaccine deniers also get angry when they're compared to Flat Earthers, because they're so busy telling themselves that they're right that they never bother to learn why people are taking the social cues that they're taking.
I suppose it's possible that you know more about financial regulation than the SEC, even though your claims stand in direct contrast to recent high profile history
Would you like to provide some evidence, or at least stop throwing around the misapplied fallacies?
.
> The Coinbase CEO is not an idiot.
So, there are three obvious possible ways to take this.
1. You think the SEC are idiots
2. You think that when the head of a shady company criticizes the financial regulator who's supposed to prevent them from doing something illegal, it's because he's smart, and not because he's a snake oil salesman
3. You didn't know Coinbase has a history of breaking financial regulations
Is it one of those, or a different thing?
> He has been very clear
When you said "the Coinbase CEO has been very clear," what I actually heard was you yelling "bitconnect" with a Spanish accent.
Try to keep up. The embattled CEO of a shady company with a history of legal problems, who's just been notified by a regulator that /yet/ /again/ they're breaking the law?
Most of us don't care how clear they've been.
If you go back, you can find people talking about how the statistics on Theranos are completely impossible for the last ten years. How the size of sample they're talking about drawing is so small that frequently there won't actually be any blood cells in it to get data from.
How it's a criminally obvious fraud from freshman year statistics.
And you'll find investors proving H L Mencken right, the entire way.
"Elizabeth has been very clear."
That's nice.
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> that this would be a regulated instrument.
That isn't how those words work.
You are very easily fooled.
(continued in self-reply because it's too long for one comment. i wish these pages wouldn't do this.)
I also explained why I agreed with the statement, explained why I felt that the straw man claim was spurious, and linked to an article that explained how I felt about the use of fallacies thus.
> If you look at their other comments, it's very obvious they're not saying it should be free of regulation.
>
> For you to have said you still agree with that assessment
There's a difference of meaning here.
Original criticizer and I are saying that this person thinks that this event is free of regulation from the SEC because they're the wrong body.
Not free from all regulation. You misunderstand what I, and I think also they, have said.
.
> For you to have said you still agree with that assessment, even after clarification was made, was you being completely unreasonable.
Another possibility is that you've misunderstood the meaning?
I wish people would be less condemning in this thread.
The strawman was > You can't just magically say, "I'm a not a thing at all, you can't regulate me!"
Sounds like "free of all regulation" to me.
Maybe you didn't mean "all regulation", but then in addition to confusingly saying it wasn't a strawman you really flubbed the wording on "the claim that someone can merely opt out of regulation" by not making that distinction clear.
I've seen more coherent rebuttals from schizophrenic bus stop vagrants. Jesus, how is anybody even supposed to read that? I have never once claimed that this product is exempt from regulation, merely that the SEC is not the one to regulate it. And I have been pretty damn consistent in saying that this clearly belongs with FINRA and/or FDIC. No amount of rambling about HL Menken and imagined interpretations of words will change that.
> I have been pretty damn consistent in saying that this clearly belongs with FINRA and/or FDIC
Naw dawg. FDIC isn't a regulator. You were perhaps thinking of the OCC? Their jurisdiction is just over banks.
And you have to understand that the entire framework of securities & exchange law sets up SEC as the regulator of all that shit. It's, like, explicitly laid out in the 33/34/40 Acts.
Wall St. guys (exchanges & broker dealers) have managed to carve out a little relief and petitioned SEC to allow them to regulate themselves for some annoying bureaucratic stuff.... but for anything major, the SEC steps right in and asserts their jurisdiction.
For example, if you're arguing that cryptocurrency-related lending is in fact some sort of securities lending, then it clearly falls under Rule 15c3-3 under the '34 Act.... which, you will note, is promulgated and administrated by the SEC. It's what they do. The SEC gives marching orders to FINRA, and then FINRA codifies some policies & procedures. If FINRA is fucking up, or they don't want to handle it, then the buck still stops right on the Commission's desk.
Nivertech below lists the Howey test, which I'm going to reuse here.
1. An investment of money - You're certainly not depositing it for safekeeping when they don't insure you against loss, and the only thing that inspires people to deposit unsafely is an earning on their investment
2. In a common enterprise - Coinbase Loan is a common enterprise umbrella, everyone using Loan expects to get paid when they all do the same common thing
3. With the expectation of profit - Laundering the investment gains through interest earned and skimming is the novel argument being constructed here
4. To be derived from the efforts of others - If you aren't doing any work and you're getting paid, that's the effort of others, and depositing the coin doesn't count as work
So I expect the SEC to win using a "money laundering" interpretation, and they'd rather not explain that to Coinbase yet. Coinbase is trying to money launder the profits of their investments through an "interest rate" for all "depositors", but that's not likely to stand up in a court of law. If they're thinking ahead far enough in political strategy terms, this product offering is bait for an eventual SEC settlement that incorporates terms that legitimize Bitcoin and destroy their competitors. I hope the SEC doesn't take the bait and just convicts them of offering an illegal/unregistered/whatever investment opportunity. It'll be interesting to see if the SEC argues that it doesn't matter whether Bitcoin is a currency for the sake of Howey, since doing this with an investment opportunity derived somehow from Beanie Babies would end up being illegal in the same way, even if the market didn't exist at all.
(I am not your lawyer, internet forum posts are not legal advice, etc.)
Thanks for this - I found it particularly enlightening. I viewed the Twitter thread thinking “damn SEC!” but now? While the SEC should probably be more transparent here, clearly CB is up to shenanigans, which justifies their threat of lawsuit.
I don't know about the regulation part of it, but why shouldn't the SEC just respond to a company asking for clarification with a clarification? I'm assuming, based on the Twitter thread, that they have not done so.
SEC clarified that the program must not be launched or a lawsuit will follow. As to why - apparently SEC is collecting information to provide a guidance. You don’t want to rush guidance.
Thanks for that link, gives great context for the US situation around the regulatory situation around commercially offered crypto lending program. There's a good summary on page 17.
From reading, the requirements you quote are specifically to be excluded under Section 3(a)3. There is also the possibility to be excluded under Section 4(a)2. Looks to me that out of those, the following points rule that out as well:
- the issuer cannot use general solicitation or advertising to market the securities
- the issuer may sell its securities to an unlimited number of accredited investors and up to 35 other purchases
- each resale of CP, including each resale by a purchaser in the secondary market, must be made in a private placement transaction
Now, my question is: How does this apply (or not apply) to interest on accounts with banks or credit unions? I think it's also quite clear that those don't apply here; is there some separate legislation (that I assume have other requirements, like holding some form of banking license) that regulate these?
Kraken has a Wyoming banking license since last year, making them federally recognized as a bank. I'd be curious to know if this means that they have a way to offer lending services that Coinbase aren't allowed to.
> They have to know this; they're a public company and have now filed SEC filings for two whole quarters.
This makes me think there may be something we're missing here. In any other case I have the impression of CB to be doing their best to play by (their interpretation of) the book. They employ some of the most competent advice in the states on compliance matters. It'd be inconsistent of them to just flagrantly ignore something like this without having any ground at all to stand on. I wouldn't blink if Poloniex/Circle or Binance US did any kind of shenanigans and excusing themselves with "regulatory uncertainty" but it's not congruent with what we've seen from Coinbase so far.
EDIT: Alternative take: CB are so worried about an exodus of liquidity if they can't match lending terms of other exchanges that they knowingly violate securities regulations to stay competitive. Under this model BA's tweets are theater. This would indicate a significant shift in values but not impossible.
Acknowledgement of Risk. By opting into Lend, you are acknowledging the following: Lend is not a checking account nor a bank savings account, and Coinbase is not a bank. By participating in Lend, you are making a loan of your eligible Digital Currency to Coinbase, Coinbase is your counterparty and you will have only a contract claim against Coinbase for the return of Loaned Digital Currency. As with any loan transaction, you could lose all your Loaned Digital Currency if we are unable to repay your loan. Coinbase does not provide you with collateral for the Loaned Digital Currency. You acknowledge that while you have the right to make a Return Request at any time, if Coinbase becomes insolvent or bankrupt or is placed in receivership your Loaned Digital Currency may be lost. Your Loaned Digital Currency is not protected by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or other insurance.
Coinbase may use Loaned Digital Currency in its sole discretion, including uses which generate returns for Coinbase in excess of the Lend APY, which Coinbase is entitled to as compensation for Lend. Any returns generated by the use of Loaned Digital Currency are not returned to you as part of Lend interest. Therefore, although the interest rate will be determined in accordance with Section 2, the interest rate is determined by Coinbase and Coinbase may have a conflict of interest with you in setting the Interest Rate.
OK. So Coinbase wants to borrow your money, invest it in something else, not tell you what that something else is, and hopefully pay you back. In the real world, they're selling you a bond or commercial paper. That's a security.[1]
Morrison and Forster lists these requirements for commercial paper that doesn't have to be registered as a security.
- Negotiable (No)
- Prime quality (No)
- Eligible for discount at Federal Reserve banks (No)
- Not ordinarily purchased by the general public (No)
- Used to facilitate “current transactions” (No)
- Maturity of nine months or less with no automatic roll-over. (No)
Nope, doesn't qualify.
Coinbase is trying to pretend to be a bank without qualifying as a bank. They have to know this; they're a public company and have now filed SEC filings for two whole quarters.
[1] https://media2.mofo.com/documents/151203commercialpaperprogr...