Coinbase releases blueprint for lawmakers, aides CFTC, SEC policy making debate

Coinbase, the largest cryptocurrency exchange, issued a blueprint on regulatory clarity for US financial regulators, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

The exchange believes that the United States Congress should require US financial regulators to classify top 100 cryptocurrencies as security or non-security, providing regulatory clarity. 

Also read: Ripple CTO recommends Charles Hoskinson take a timeout, after Cardano co-founder called XRP Army toxic

Coinbase urges US Congress to require SEC, CFTC to categorize cryptocurrencies

Coinbase, an American publicly traded company that operates a cryptocurrency exchange platform, published a regulatory blueprint to aid financial regulators in the United States. One of the largest cryptocurrency exchanges by volume, Coinbase issued a document that urges the US Congress to ask US financial regulators, the Securities and Exchange Commission and the Commodities and Futures Trading Commission to classify top 100 cryptocurrencies as security or non-security for clarity. 

The trading platform believes stablecoin issuers, exchanges and custodians need to aid regulation by taking the first steps towards a regulatory framework for crypto. Brian Armstrong, CEO of Coinbase, says that he has been in hundreds of meetings with policymakers over the past ten years. 

Brian Armstrong believes that the collapse of the FTX exchange will be the catalyst needed to get crypto legislation passed. While the blueprint explains most things from a US lens, Armstrong argues that similar steps are needed from every major financial market around the world, including G20 nations. 

Coinbase shares a modern day Howey Test for cryptocurrencies

Coinbase shared the exchange’s version of a modern day Howey Test for cryptocurrencies. In the absence of commentary and regulatory clarity from United States financial regulators, the platform shared the following as a modern day test for cryptocurrencies:

• Was there an investment of money? If the crypto asset issuer hasn't sold the asset for money for the purpose of building a project, it's not a security.
• Is the investment in a common enterprise? For a crypto asset to be a security, it must be controlled and operated by a centralized organization like a company. If a project has become sufficiently decentralized, it's not a security.
• Is there an expectation of profit? If the primary purpose of the crypto asset is some other form of utility (voting, governance, incentivizing actions of a community, etc) then it is very unlikely to be considered a security.
• Are the profits to be derived primarily from the efforts of others? If the expectation of profit primarily comes from participants who are unaffiliated with the issuance of the asset, then the project is sufficiently decentralized and would not be considered a security.

The crypto trading platform believes that the CFTC and the SEC need to offer their categorization of cryptocurrencies, and if issuers disagree they can settle edge cases in the court. This could serve as an important labeled data set for the rest of the industry to follow, as, ultimately, millions of crypto assets will be created.