The SEC has once again resorted to its usual rhetoric against the crypto industry, asserting that digital assets lack any “innate or inherent value,” prompting sharp reactions across the community. This time, their criticism is aimed at Coinbase’s assertion that cryptocurrency trading does not qualify as an investment contract. In June, the crypto exchange sought to dismiss the SEC’s lawsuit, which accused it of failing to register as an exchange, broker, and clearing agency since 2019.
Coinbase’s primary argument in court was that the assets identified by the regulator are not securities, and therefore, secondary transactions involving these assets do not fall under its regulations. They also contended that Coinbase’s “staking” services do not meet the criteria of an “investment contract” as per the Howey Test—the only type of security the commission claims is relevant in this case.
Rather than providing a clear response, the regulator’s repetitive claim that digital assets lack intrinsic value has elicited frustration from both Coinbase and crypto enthusiasts. The market watchdog justified its stance by reiterating that federal securities laws are meant to be interpreted flexibly through the “Howey Test,” a legal doctrine they adhere to.
According to the commission, the Howey Test allows them to regulate a wide array of investments, ranging from whiskey caskets to chinchilla farms, as investment contracts. However, they argue that many cryptocurrencies are different because they do not possess inherent value, unlike the tokens cited in their lawsuit.
SEC- “Investment Contracts Can Be Widely Interpreted”
In their filing, the SEC stated that if crypto assets have underlying value, it is accessed through the digital token, which, on its own, holds no intrinsic worth and is linked to its underlying value—the investment contract. It emphasizes that “investment contracts” can be broadly defined. They also contest the necessity of a formal, binding agreement between a token’s buyer and seller to categorize it as an investment contract.
Another debated aspect concerns whether investors involved in these agreements should expect a portion of business profits as a guarantee. The regulator opposes this notion. Additionally, the regulator distinguishes between primary and ancillary market trades, asserting that the Howey Test applies to both situations. Influential legal figures such as Paul Grewal have voiced their criticism regarding the SEC’s positions, with Grewal remarking, “It’s just a repetition of familiar arguments.”
