SEC turns on Crypto

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Before we jump into this article, I want to mention that this is not financial advise! This article is pure for information and entertainment purposes only! With this out of the way lets start with the shocking news that I read about.

It seems like the SEC will turn on our beloved crypto market. More specifically on Coinbase. What happened you may ask? The SEC sent a “Wells Notice” to COINBASE which is basically a heads up to Coinbase that the SEC is going to sue Coinbase. The main reason why the SEC is doing that is because of the Crypto lending that Coinbase is offering. Here, the users of Coinbase can deposit their stable coins and gain an annual return of about 4% on their deposit. (Compared to the <1% at banks this seems pretty nice) The problem that the SEC now sees is that this is considered a security which has to be taxed.

Situation explained

But why is this a security and the normal bank process is not? That’s because of the Securities Act of 1933. (Link) There the definition of security is defined. In one section they exclude banks from this which seems kin of sketchy but these are the current rules. Furthermore, you can define an existing security with the following four attributes/ questions. Firstly, is there an investment of money involved? This point is debatable because people are not really investing money by holding a stable coin. Secondly, Is this happening in a common enterprise? This is a hard yes, because Coinbase is considered a common enterprise. Next would be the question if this whole thing is profitable. For this point there should be no debate. People wouldn’t do it if it wasn’t profitable. And last but not least, is the effort of others needed. This has also to be answered positively because other people would borrow the money so you can earn interest. In total at least three out of the four indicators prove that this should be a security.

The big question now is: Why is the SEC doing this? The very easy answer is. They want to protect the banks. But this is way too easy and to shortly thought. I think this is just a way to prevent things like 2008. A very good video and my source for this article was the following. I recommend you watch this as it explains it better than I ever could!