What is the difference between securities and collectibles? This question is at the heart of the Securities and Exchange Commission’s lawsuit against Coinbase. Coinbase accuses the company of selling unregistered securities and operating an unlicensed staking service program.
But after the SEC’s lawyers faced pointed questions from New York District Judge Katherine Polk Failla, who wondered whether the SEC’s definition of collectibles was too broad, a Bloomberg analyst estimated that Coinbase currently has the upper hand in the case.
“The judge wanted a limiting principle in the SEC’s definition of “investment agreements,” which does not include collectibles. We see what Coinbase is offering as a more compelling call for investment in the business rather than simply an ecosystem with enforceable obligations,” Bloomberg senior litigation analyst Elliott Stein wrote.
Coinbase’s lawyers argued that not all cryptocurrency purchases constitute an investment contract, likening the difference to “investing in Beanie Baby Inc. versus purchasing Beanie Babies.” Also at issue was whether there was an “ecosystem” behind the token. For example, lawyers on both sides differed on whether Bitcoin constitutes an ecosystem, with SEC lawyers arguing that it does not.
Judge Failla did not rule from the bench after a four-hour hearing and said he needed more time to consider the questions at hand. If Coinbase’s application is dismissed in whole or in part, the case will continue to be investigated. Stein’s analysis suggests that Coinbase may not win this motion, but the company is expected to win in the end.
“Our argument: There is a 70% chance that Coinbase will later beat the SEC on this move, if not outright,” Stein wrote. “Even if the case survives, it will likely go all the way to the Supreme Court, which I think will narrow Howey’s scope,” Stein argued, referring to the standards for deeming assets as securities under U.S. law.
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