Coinbase Global Inc, US' biggest crypto exchange, in a court hearing said buying cryptocurrency was more similar to collecting Beanie Babies than investing in stocks.
The company made the remark on Wednesday during a hearing in a New York federal court in a lawsuit filed by , which accused Coinbase of selling unregistered securities.
William Savitt, the lawyer representing Coinbase, told US District Judge Katherine Polk Failla, "It’s the difference between buying Beanie Babies Inc. and buying Beanie Babies."
Savitt argued that the tokens traded on the exchange aren't like stocks or bonds, so they don't fall under the authority of the SEC, because when people buy these tokens, they don't acquire any rights as they would with stocks or bonds.
Beanie Babies are the soft toys that experienced a collecting craze and decline in the 1990s similar to the ups and downs often seen in cryptocurrency prices.
Coinbase's comparison of cryptocurrency with the soft toy is apparently aimed at circumventing SEC regulation of its trading exchange.
The government's lawyer argued that purchasing things like baseball cards or figurines doesn't imply buying a share in the company that produces them, however, this is different for tokens sold on Coinbase.
SEC lawyer Patrick Costello stated that when people buy these tokens, they are essentially investing in the network associated with them, and the two can't be separated.
Costello argued that the tokens should be considered securities because buyers expect to profit from the efforts of others, aligning with the 1946 Supreme Court definition of a security.
The SEC in the lawsuit claimed that the exchange violated rules by allowing users to trade numerous crypto tokens that were unregistered securities.
The federal body based its argument on a 1946 Supreme Court decision defining a security as an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others."
Savitt, though acknowledged that buyers may believe in the potential for the value of digital assets to grow, argued that this belief alone should not classify the tokens as securities.
SEC lawyers urged Judge Failla to dismiss Coinbase's arguments, stating that the platform is making customers think that certain digital assets they purchase will appreciate in value.
Savitt said that while regulatory agencies, including the commission, have authority in the world of securities, there are limits to that authority. "But it does stop at the water’s edge."
This question of whether digital tokens are securities has led to disagreements in several courts of law.
In July, a judge in Manhattan ruled that the sale of Ripple Labs' XRP token is not under SEC control. Yet, in another case against Terraform Labs Pte in the same month, a different judge reached a different conclusion.
Coinbase is now asking Judge Failla to follow the decision about Ripple and dismiss the SEC's lawsuit. The judge has not made a decision yet, and the hearing ended without a resolution.
In conclusion, the outcome of this case extends beyond Coinbase and holds significant implications for the entire digital asset sector.
It has the potential to provide clarity on the SEC's role in regulating the industry, shaping the future landscape of how digital assets are classified and overseen within the regulatory framework.
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