The U.S. Securities and Exchange Commission (SEC) has once again found itself at the center of a heated debate. During its ongoing lawsuit against Coinbase, the SEC argued that cryptocurrencies have “no innate or inherent value.” In response to Coinbase’s request for pre-trial judgment, the agency asked the court to dismiss Coinbase’s claim that crypto trading doesn’t constitute an investment contract. Moreover, the SEC leaned on the “Howey Test,” a legal principle, to back its argument, stating that federal securities laws should be read broadly.
Coinbase’s rebuttal and industry backlash
For decades, the SEC has argued that investments such as whiskey caskets and chinchilla farms can be regulated as investment contracts under the Howey test. However, the SEC stated that many cryptocurrencies are different only in that they lack innate or inherent value on their own, whereas the tokens cited in the lawsuit meet the criteria under Howey. The SEC further explained that although crypto assets may embody some underlying value, that value is accessed through the digital token. The token itself, on the other hand, has no innate or inherent value of its own and is tied to its underlying value, which, in the case of the crypto assets mentioned in the lawsuit, is the investment contract.
Coinbase’s Chief Legal Officer Paul Grewal expressed his dismay at the SEC’s argument. In a series of posts on X, Grewal criticized the SEC for rehashing old points without providing any legal citations. He went on to mock the SEC’s broad definition of what constitutes a ‘security,’ stating that by the SEC’s logic, “everything from Pokemon cards to stamps to Swiftie bracelets” would also be considered securities.
Paul Grewal’s comments echo the sentiments of New York Congressman Rep. Ritchie Torres, who questioned SEC Chairman Gary Gensler last month. Torres clarified that the SEC’s current arguments do not align with existing law.
Additionally, Stuart Alderoty, the Chief Legal Officer for Ripple Labs, joined the fray, ridiculing the SEC’s stance as fundamentally flawed.
The SEC’s argument has not only drawn criticism from Coinbase but also from other key players in the crypto industry.
The lawsuit comes at a time when the question of cryptocurrencies’ value has been a topic of discussion since the technology’s inception. Unlike traditional fiat currencies like the U.S. dollar, cryptocurrencies don’t have the legal backing of a government entity. Instead, their value is largely determined by market forces. Consequently, the SEC’s argument seems to be at odds with the decentralized nature of cryptocurrencies, sparking further debates on the regulatory landscape of digital assets.
