Cryptocurrency Exchange and wallet service Coinbase has received approval from the United States Securities and Exchange Commission (SEC) to list security tokens.
This follows the approval of the company’s acquisition in June of three companies namely Keystone Capital Corp., Venovate Marketplace Inc., and Digital Wealth LLC. The move is also in line with one by a fellow competitor Circle Internet Financial Ltd.
Why the move?
Obtaining approval to operate as a broker-dealer would provide the company with access to several markets. The company currently operates in selected states within the United States.
What are security tokens?
While investors would generally describe all tokens as securities (since they invested through an ICO), Initial Coin Offerings (ICOs) can be divided into two broad categories: Utility tokens and Security tokens. Utility tokens give one access to a network. Examples of utlity tokens include filecoin.
Security tokens are similar to regular financial assets such as stocks and bonds. They are purchased with the anticipation of future profits in form of dividends, revenue share or (most commonly) price appreciation.
Tokens can further be classified into share like tokens which represent ownership of a company and asset backed tokens which a right to real world asset such as commodities.
For a token to qualify as a security, the following conditions must be met:
- The user is investing money or assets.
- The user expects to profit from the investment.
- The investment is in a common enterprise.
- Any profit made must come from a third party or promoter.
These conditions are known as the Howley test.
From an initial opposition and description of cryptocurrencies as illegal and a passing fad, financial authorities in the United States have developed rules for their trade.
CBN Governor Godwin Emefiele has likened trading in cryptocurrencies to gambling, while the apex bank in February issued a statement reiterating that cryptocurrencies are not a legal tender and as such are illegal.
The apex bank stated that cryptocurrencies such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc and Exchanges such as NairaEx are not licensed or regulated by the CBN.
The apex bank has however held several fora in a bid to get a better understanding of the sector. Exchanges in Nigeria have also implemented KYC requirements for some level of transactions.
Coinbase was founded in 2012 and is a digital currency wallet and exchange platform. The exchange currently has over 20 million users and has traded over $150 billion worth of cryptocurrencies.