SEC asserts Cryptocurrencies lack 'Innate or Inherent Value' in Coinbase lawsuit

The Securities and Exchange Commission (SEC) has emphasised its position that cryptocurrencies possess "no innate or inherent value" as it defends its case against Coinbase in a federal court. This assertion has sparked reactions from Coinbase and the crypto community, further intensifying the ongoing legal battle. The SEC argues that digital tokens, including those cited in the lawsuit, are subject to federal securities laws based on the flexible interpretation provided by the "Howey Test."

SEC's Stand on Cryptocurrency Value:

The SEC's filing reiterates its long-standing application of the Howey Test, which has historically allowed the regulation of diverse investments under the umbrella of investment contracts. The argument implies that, unlike traditional assets such as whiskey caskets or chinchilla farms, cryptocurrencies lack intrinsic value. According to the SEC, the value of crypto assets is accessed through digital tokens, which, on their own, possess no inherent value. The tokens, in this context, are tethered to their underlying value, defined as the investment contract.

Coinbase's Response and Legal Discourse:

In response to the SEC's arguments, Coinbase's chief legal officer, Paul Grewal, dismissed the SEC's motion as a repetition of the same position. Grewal contested the SEC's stance, drawing parallels to various collectibles like Pokemon cards, stamps, and Swiftie bracelets. He pointed out that such items would also be considered securities if the SEC's logic were applied universally.

Grewal's comments echoed sentiments expressed by Rep. Ritchie Torres during a recent House Financial Services Committee hearing. Torres had emphasised that categorising items like Pokemon cards as securities is not consistent with existing laws. Ripple Labs' chief legal officer, Stuart Alderoty, joined the discourse on social media, highlighting flaws in the SEC's brief and questioning its assertion that digital assets lack inherent value while comparing them to collectible baseball cards.

The SEC's attempt to label Solana, Polygon, and Cardano as securities in its lawsuit against Coinbase has faced pushback from the respective organisations behind these cryptocurrencies. The SEC had included these altcoins in its list of unlicensed securities. The developers of Solana, Polygon, and Cardano contested this designation, aligning themselves against the regulatory body's claims. This resistance is part of a broader trend where crypto projects are challenging regulatory assertions and defending their status as non-securities.

The ongoing debate over the value of cryptocurrencies is rooted in the unique nature of these digital assets. Unlike traditional fiat currencies, cryptocurrencies lack the legal backing of a government entity. Notably, Bitcoin and others were designed to operate independently of central authorities. The value of tokens is primarily determined by market forces, with supply and demand dynamics playing a crucial role.