The U.S. Securities and Exchange Commission (SEC) has stated that digital assets have no inherent value.
In a court motion filed last week against Coinbase, the top US crypto exchange by volume, the regulatory agency says that digital assets have no real value as they cannot generate profits on their own.
“Real estate has ‘inherent value,’ whereas a crypto token ‘will generate no profit absent an ecosystem that drives demand.’”
The SEC references the Howey test, a legal criteria often cited to determine whether a transaction counts as an investment contract or not, to help prove its point.
According to the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
Says the SEC,
“Any suggestion that the potential utility of some of the assets somehow changes the analysis is wrong. The investment contracts in Howey involved the sale of an asset – orange groves. Other tangible assets sold as part of investment contracts include beavers, whiskey caskets, and chinchillas – assets with inherent value…
Crypto assets are unlike the tangible assets sold in those cases.”
According to the SEC’s argument, crypto’s lack of inherent value makes it an investment contract, and therefore, under the jurisdiction of the SEC.
“If crypto assets embody some underlying value (like an entry on a ledger), that value is accessed through the digital token. But the token (which is just software) has no innate or inherent value of its own – it is tied to its underlying value, which for the crypto assets at issue in this case, is the investment contract. Without the access to a service or the intellectual property those crypto assets signify, they would be worthless.
After all, investors are not purchasing those assets to own a digital sequence of letters and numbers.”
Last month, Coinbase said that the SEC’s enforcement-only approach is negatively impacting the US economy.
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