Coinbase has recently been facing a lot of issues. One of their now ex-employees has been charged with insider trading over the newly listed coins. And now Coinbase faces another SEC investigation over their new listings. The SEC is checking whether the exchange is allowing Americans to buy, sell and trade digital assets that should fall under securities. Even though Coinbase claims that they don’t list securities, the SEC’s definition of it could be different. They are even calling Ripple (XRP) security.
Coinbase spokesperson on the situation
Since the Securities and Exchange Commission has been saying that most cryptocurrencies are securities, Coinbase had asked them to formulate laws for such digital assets. It’s not as if the exchange will leave behind so many tokens and projects and won’t list them. If the SEC can become just a little more transparent, the US markets won’t fall behind other countries, and neither will Coinbase.
How are securities defined?
Securities are financial instruments that are used to raise funds from the market. They are also fungible and are not unique. Equities of various companies in the stock market also fall under securities, and so is debt ownership in the lending market where loans are given. However, to check if a cryptocurrency or a digital asset is a security or not, we have the Howey test. It asks four questions, and if the answer to all of them is yes, then the digital asset is a security.
- Is acquiring the digital asset investment of money or wealth? This means whether funds are involved in the transactions.
- Is the money invested in the digital asset going towards a common group or company?
- Are there any expectations that the investment will reap benefits or profits in the future?
- Does the success of the investment depend solely on an investor?
Most cryptocurrencies check all four questions, and you will see that they pass the test and can be called securities. Bitcoin and Ethereum do not fall under securities and are considered commodities by the SEC. Bitcoin doesn’t pass the number 2 and number 4 question, and for Ethereum, it’s no 4.
What are your thoughts as Coinbase faces SEC investigation on their newly listed coins? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
Also Read: Bitcoin’s mining difficulty falls again and is down 10% from ATHs.
