The US Securities and Exchange Commission (SEC) has declared that digital assets have no inherent value.
In a lawsuit filed last week against Coinbase, the largest U.S. crypto exchange by volume, the regulator says digital assets have no real value because they cannot generate profits on their own.
“Real estate has ‘inherent value,’ while a crypto token ‘will not generate profits if there is no ecosystem to drive demand.’”
The SEC points to the Howey test, a legal criterion often cited to determine whether or not a transaction qualifies as an investment contract, to help prove its point.
According to the Howey test, an investment contract is “a contract, transaction or arrangement whereby a person invests his money in a common enterprise and is led to expect a profit solely from the efforts of the promoter or a third party.”
Says the SEC,
“Any suggestion that the potential usefulness of some assets somehow changes the analysis is wrong. The investment contracts in Howey involve the sale of an asset: orange groves. Other tangible assets sold as part of investment contracts include beavers, whiskey chests and chinchillas – assets with inherent value…
Crypto assets are different from the physical assets sold in those cases.”
According to the SEC’s argument, crypto’s lack of inherent value makes it an investment contract and therefore falls under the SEC’s jurisdiction.
“If crypto assets embody an underlying value (such as an entry on a public ledger), that value is accessible through the digital token. But the token (which is just software) has no innate or inherent value of itself; it is tied to its underlying value, which for the crypto assets at stake in this case is the investment contract. Without the access to a service or the intellectual property that these crypto assets represent, they would be worthless.
After all, investors aren’t buying these assets to own a digital string of letters and numbers.”
Last month, Coinbase said the SEC’s enforcement-only approach is negatively impacting the U.S. economy.
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