Collectibles Are From Mars, Cryptocurrencies Are From Venus

Seven key differences between collectibles and crypto

In our previous post, we discussed how Coinbase keeps coming back to collectibles. They believe the potential determination of secondary crypto transactions being investment contracts (and therefore securities) leads to an implausibility because that determination would sweep collectibles into securities status. 

At first glance, the argument seems deceptively valid. In both cases, there exists an asset that does not generate cash flows that people can purchase when they please. What would make one a security but not the other? 

Judge Failla pressed the SEC during oral argument on this issue and asked the SEC to provide some limiting principles. The SEC offered up the ecosystem concept as a potential limiting principle, which they more or less aligned to the second Howey prong.

The SEC is correct that there is a limiting principle, but it is not the ecosystem/second Howey prong. Rather, it is the third Howey prong: “expectation of profits.” Before we make that case, however, let’s remember some key differences between crypto and collectibles: