Coinbase Argues Token Buyers Don’t Acquire Any Rights

In a Wednesday (Jan. 17) court hearing, cryptocurrency exchange Coinbase Global made a comparison between buying cryptocurrency and collecting Beanie Babies.

The comparison was presented as part of Coinbase’s defense against a Securities and Exchange Commission (SEC) lawsuit accusing the company of selling unregistered securities, Bloomberg reported Wednesday.

William Savitt, a lawyer for Coinbase, argued that the tokens traded on the exchange should not be considered securities under SEC jurisdiction, according to the report. He emphasized that buyers of these tokens do not acquire any rights associated with their purchases, unlike traditional stocks or bonds.

“It’s the difference between buying Beanie Babies Inc. and buying Beanie Babies,” Savitt said, per the report.

The classification of digital tokens as securities has been a contentious issue in the courts, according to the report. In a similar case involving Ripple Labs’ XRP token, a Manhattan federal judge ruled that the token was not subject to SEC jurisdiction. However, in the SEC’s case against Terraform Labs, another judge reached the opposite conclusion.

Coinbase is urging the judge in its case to follow the Ripple decision and dismiss the SEC’s lawsuit, the report said. However, the judge adjourned the hearing without ruling, leaving the outcome uncertain.

Earlier in the trial, the judge asked if the SEC’s position might lead to the regulation of collectibles, according to the report.

The SEC contended that the tokens are different from a baseball card or other collectible because when buyers purchase these tokens, they are essentially investing in the underlying network, the report said. They argue that the tokens should be considered securities because buyers expect to derive profits from the efforts of others, aligning with the definition of a security according to a 1946 Supreme Court decision.

Savitt acknowledged Wednesday that buyers of digital assets on Coinbase may believe in the potential for value growth, but he argued that this belief alone should not classify the tokens as securities, per the report.

Beyond Coinbase, this case will likely have larger ramifications for the digital asset sector, as it could clarify the SEC’s role in regulating the industry.