- 1 The case has been strengthened by a more precise definition of an “investment contract.”
- 2 The sale of assets on exchanges does not align with the criteria of the Howey Test.
- 3 Claims related to staking and brokerage also appear to have vulnerabilities that can be addressed.
Leading litigation analyst Elliott Stein of Bloomberg believes cryptocurrency exchange Coinbase has a 70% probability of prevailing in its legal battle against the Securities and Exchange Commission. He sees several strong arguments from Coinbase around the definition of an investment contract and the applicability of the Howey Test.
More Precise “Investment Contract” Definition
Much of Stein’s confidence stems from Coinbase likely having a more precise explanation of what constitutes an “investment contract” compared to the SEC. The exchange’s definition specifies the need for an investment into an underlying business, beyond just an ecosystem, with an enforceable obligation.
It would debunk the SEC’s broad characterization that could sweep various digital asset activities under securities laws. The judge overseeing the case also asked the SEC for a limiting principle to its interpretation and seemed unsatisfied with the response. The specificity of Coinbase’s stance gives it an edge on a focal point.
Selling Assets on Exchanges Fails Howey Test
Additionally, Stein notes how the recent Ripple ruling emphasized that selling assets on public exchanges does not satisfy the four prongs of the Howey Test, used to determine if something is classified as a security. This precedent bodes well for Coinbase’s trading services, avoiding this designation.
With cryptocurrency exchanges merely facilitating transactions of assets instead of issuing contracts for profits, the platform activities fall outside the jurisdiction of securities law. Even if the suit continues, the Supreme Court would likely refine Howey further in Coinbase’s favor.
Other Claims Also Surmountable
Beyond the primary aspects, Stein believes Coinbase can parry the SEC’s allegations around staking and brokerage functions. In his view, the same precise explanation of “investment” succeeds against the staking claims.
Besides, while the brokerage accusations remain murkier, the exchange has reasonable counters about adequately meeting broker criteria. So, across all major fronts, Coinbase appears positioned to prevail.
Path Forward Still Uncertain
Nevertheless, legal experts caution that regulatory cases contain uncertainties, and the SEC maintains aggression in applying securities laws to various crypto activities. However, the shifts towards clearer tests based on recent rulings point towards positives for Coinbase and the wider industry.
As cryptocurrencies continue maturing into an entrenched asset class, increased lucidity around how regulations apply helps stabilize related companies. This landmark case represents a pivotal opportunity to get closer to that clarity.
Elliott Stein’s extensive litigation experience makes him an insightful voice on the toss-up SEC vs Coinbase lawsuit. He sees reasonably strong odds favoring Coinbase across the core claims by reading the room after the latest hearing.
Should Coinbase earn a favorable verdict, it resets boundaries on what specific digital currency activities agencies can police under existing statutes. However, the SEC remains staunch in pursuing expanded authority. With both sides digging in, it may require the Supreme Court to ultimately deliver the final word on what lies within SEC jurisdiction.
Amanda Shinoy is one of the few women in the space invested knee-deep in crypto. An advocate for increasing the presence of women in crypto, she is known for her accurate technical analysis and price prediction of cryptocurrencies. Readers are often waiting for her opinion about the next rally. She is a finance expert with an MBA in finance. Quitting a corporate job at a leading financial institution, she now engages herself full-time into financial education for the general public.