The Securities and Exchange Commission (SEC) has ignited a debate by contending that cryptocurrencies possess “no innate or inherent value” in its ongoing legal battle with Coinbase, a prominent cryptocurrency exchange. This argument has drawn reactions from both Coinbase and crypto enthusiasts.
In response to Coinbase’s motion to dismiss the SEC’s lawsuit filed earlier in the summer, the SEC has urged a judge to reject Coinbase’s assertion that cryptocurrency trading does not constitute an investment contract. The SEC justified its stance by invoking the “Howey Test,” a legal doctrine that allows for flexible interpretation of federal securities laws.
Under the Howey Test, the SEC has historically argued that various investments, including items like whiskey caskets and chinchilla farms, can be subject to regulation as investment contracts. However, it contends that many cryptocurrencies, unlike the tokens mentioned in its lawsuit, do not meet the criteria primarily because they lack “innate or inherent value.”
The SEC stated in its filing, “If crypto assets embody some underlying value… that value is accessed through the digital token,” adding, “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.”
Coinbase’s Chief Legal Officer, Paul Grewal, dismissed the SEC’s arguments as “more of the same old same old.” He argued that the SEC’s position would imply that a wide range of items, from Pokémon cards to stamps to collectible bracelets, should also be considered securities, which he deemed incompatible with existing law.
Grewal referred to New York Congressman Rep. Ritchie Torres’ recent questioning of SEC Chairman Gary Gensler during a House Financial Services Committee hearing, suggesting that such a broad interpretation of securities law was not justified.
Stuart Alderoty, the Chief Legal Officer for Ripple Labs, which recently achieved a partial victory against the SEC in a lawsuit, criticized the SEC’s argument on Twitter. He highlighted the SEC’s claim that digital assets have no inherent value, contrasting it with the existence of collectible baseball cards.
In its lawsuit against Coinbase filed on June 6, the SEC listed several altcoins, including Solana, MATIC, and Cardano, as unlicensed securities. The developers of these tokens and Coinbase have strongly contested these allegations.
The debate over the value of cryptocurrencies has persisted since their inception. Unlike fiat currencies such as the U.S. dollar, cryptocurrencies lack the backing of a government entity and were designed to operate independently of central authorities. Instead, the value of cryptocurrencies is predominantly determined by market supply and demand dynamics.
