Thread by @GeorgeSelgin

While Canada's broad-brush classification of crypto tokens as securities is elegant, but I'm not convinced that it makes good legal sense.

https://twitter.com/DanAwrey/status/1442619370572812296

In particular, it seems to me that Kraken is correct in its letter arguing that a token custodian doesn't take possession of crypto assets placed with it, and that this makes it a bailee rather than a debtor. docs.iiroc.ca/DisplayDocumen…

In response, JP reports, "The CSA has taken the old bitcoin maxim 'not your keys not your bitcoin' to heart," ruling based on that claims on crypto custodians are debt contracts, hence securities.

But this appeal to a Bitcoiner maxim is hardly "good legal sense." The legal definition of "ownership" is "the legal right to use, possess, and give away a thing." Clearly, by this definition, merely possessing keys that allow access to property isn't the same as "owning" it.

Suppose my neighbor agrees to let me store a bicycle in his shed, to which he owns the sole key. Do I still own the bicycle, or do I merely own an IOU from my neighbor? Must my neighbor report to Gary Gensler? And just when did Bitcoiners become legal authorities, anyway?

Less facetiously, do we really want to make it easy for an evidently power-hungry SEC to classify practically any intermediary that deals in tokens as a securities issuer?

Suppose I proposed an opposite rue from the CSA's, to wit, that _no_ tokens firms that deal in them will be considered securities or security dealers! That would be "elegant" as the CSA's solution and, IMHO, about as legally sound.

Well, many of you will say I'm crazy, and perhaps you'd be right. But I'm not sure that Canada's solution is ultimately better. If it's security regulators aren't too heavy-handed, it might be. But if they are, it could be the lesser evil.

Applied to the U.S., I think my crazy solution is far more likely to be the lesser evil, for given the opportunity to adopt Canada's alternative, I very much fear that Mr. Gensler might take advantage of it to cripple the crypto industry.

Att'n: @jp_koning @WilliamJLuther @nic__carter @jerrybrito @naomibrockwell @lawrencehwhite1 @CaitlinLong_ @mikejcasey @norbertjmichel