The Securities and Exchange Commission is arguing that cryptocurrencies lack any “innate or inherent value” as part of their case against Coinbase in federal court—prompting eye rolls from Coinbase and crypto watchers.
In response to a motion to throw out the agency’s lawsuit filed over the summer, the SEC petitioned a judge to reject Coinbase’s stance that cryptocurrency trading does not count as an investment contract between parties. It justified its position by repeating its position that federal securities laws are designed to be interpreted flexibly through the legal doctrine known as the “Howey Test.”
Under Howey, the SEC has argued for decades that investments ranging from whiskey caskets to chinchilla farms can be regulated as investment contracts. However, it says that many cryptocurrencies differ only because they “have no innate or inherent value” on their own—whereas the tokens it cited in its lawsuit meet the criteria under Howey.
“If crypto assets embody some underlying value…that value is accessed through the digital token,” the SEC wrote in its filing. “But the token… has no innate or inherent value of its own—it is tied to its underlying value, which for the crypto assets at issue in this case, is the investment contract.”
But the SEC’s arguments were brushed off by Coinbase’s chief legal officer Paul Grewal, who dismissed their motion “more of the same old same old” position.
“The SEC’s arguments today would mean that everything from Pokemon cards to stamps to Swiftie bracelets are also securities,” Grewal wrote. “As [New York congressman Rep. Ritchie Torres] made so clear last week, that is simply not the law, nor should it be.”
He was referring to Rep. Torres’ questioning of Gary Gensler at a House Financial Services Committee hearing last month.
Stuart Alderoty, the chief legal officer for Ripple Labs—which won a partial victory against the SEC in July after being sued—also took to Twitter to ridicule the SEC’s argument.
“There is so much wrong with the SEC’s brief in the Coinbase case I don’t know where to begin,” wrote Alderoty on Thursday. “Let’s start with the SEC claiming, without citation or support, that digital assets have no innate or inherent value while collectible baseball cards do.”
As part of its June 6 lawsuit against Coinbase, the SEC listed several altcoins it labeled unlicensed securities, including Solana, MATIC, and Cardano. The developers for these tokens have balked at this designation, and Coinbase has rebuked the charges against it.
The question of cryptocurrencies’ value has been asked since the earliest days of the technology. Unlike fiat currency like the U.S. dollar, tokens do not have the legal backing of a government entity, and ones like Bitcoin were designed to exist apart from a central authority. Instead, tokens’ value is mostly determined by the market forces of supply and demand.
