When the judge presiding over Ripple decided that XRP did not qualify as an unregistered security, it felt like a win for all of crypto.

But then this was overruled, and we were left feeling like that case wasn’t quite the win that we thought it was.

And as court rulings turn wins into losses, the SEC is really testing our patience with their reliance on a 90-year-old precedent.

What’s it going to take to break the SEC? And why have they put all their chips on an ancient test from the Sunshine State?

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Espresso Shots

☕️ Fake PYUSD Tokens Flood the Market 🌊 🪙

In the fervor surrounding the announcement of PYSUD, Paypal’s stablecoin, copycats have been creating fake PYUSD tokens and sometimes netting massive gains.

Since Monday’s announcement that PayPal would roll out their stablecoin, over 66 fake PYUSD tokens have debuted across several blockchains.

Some of the imposters have had fairly fruitful runs and many overexcited investors have already fallen victim to rug pulls.

The imposters will claim to be your PayPal, but all we see are enemies.

☕️ Battle of the Bills ⚔️ 📜

Elizabeth Warren’s crypto anti-money laundering bill is facing serious, bipartisan opposition in the form of… another crypto anti-money laundering bill.

Warren’s Digital Asset Anti-Money Laundering Bill, which is co-sponsored by Sen. Roger Marshall (R - Kan.), is in direct competition with the National Security Enhancement Act, which also has bipartisan support.

This competing bill is focused on bringing DeFi under the Bank Secrecy Act and other U.S. restrictions.

Warren and Marshall’s bill, on the other hand, is focused on redefining “financial institutions” and fitting crypto into that definition. Their legislature even includes validators and miners.

But it’s still unclear which of these bills will prove dominant, but we look forward to the “Dueling Legislation” rollercoaster tie-in at Universal Studios this summer.

☕️ Binance Secures Crypto License in El Salvador 🇸🇻🪙 

Amid widespread international rejection, Binance has finally found refuge in El Salvador, which granted the exchange operating approvals this week.

Those approvals come in the form of a Bitcoin Services Provider License (BSP) and a Digital Assets Services Provider license (DASP).

But El Salvador might be the perfect home for an exchange like Binance. El Salvador made waves in 2021 as the first country to declare Bitcoin legal tender.

However, we have to credit Binance’s originality. Usually, when failing superpowers are fleeing Europe, they make the more cliché move of hiding out in Brazil or Argentina.

Spilling the Beans

Is This Crypto's Achilles' Heel? 🏹 🦶

The Ripple Ruling was supposed to be a clear, decisive win for the crypto industry.

In short, Ripple was charged with a lawsuit for selling unregistered securities in the form of its native XRP token.

Judge Analisa Torres of the Southern District of New York, who presided over the case, ruled that XRP did not constitute an unregistered security. On the other hand, she did find that the investment contracts Ripple offered to institutional buyers constitute investment contracts.

But the takeaway here is that a popular, well-traded token that wasn’t Bitcoin or Ethereum was definitively deemed as a non-security.

And what should have been a firmly established precedent, was rebuked just two months later by Judge Jed Rakoff, also of the Southern District of New York.

Rakoff rejected a citation of the Ripple precedent in the defense from Terraform Labs’ lawyers. Terraform’s defense team attempted to use the precedent to dismiss the SEC lawsuit against their client.

And why isn’t Rakoff taking the Ripple ruling seriously?

Simple. Rakoff felt the Ripple decision was a misinterpretation of the Howey Test. Rakoff argued that the Howey Test makes no distinction between purchasers. If those investment contracts were deemed unregistered securities, so should XRP sales to individual investors.

But what exactly is the Howey Test?

Short answer: It’s old, it’s annoying, and somehow still the go-to for regulatory bodies and certain judges when it comes to crypto.

The Howey Test falls under the guidelines set by the Securities Act of 1933, but the actual Howey precedent occurred in 1946.

In the SEC v. W.J. Howey Co., the Howey Company was selling Florida orange groves to investors who would in turn lease the land back to the Howey Company.

If it seems sketchy, it’s because it certainly was. The Howey Company’s failure to register these sales with the SEC makes them some of our country’s first, official, unregistered securities.

And this case brought about the eponymous Howey Test, which is a set of four criteria for determining whether or not an asset is a security.

It’s worrisome that this test is being applied to digital assets because it was derived at a time when lawmakers couldn’t conceive of the internet, let alone cryptocurrency.

And Rakoff’s decision to emphasize Howey and ignore Ripple has had dire implications for the next crypto exchange up to bat: Coinbase.

Coinbase has weathered the SEC’s regulatory storm with excellent valor. Whoever’s head of PR at Coinbase, they’re not paying them enough.

Because Coinbase has managed to frame the SEC’s regulatory lawsuit as an opportunity, and one that enables the firm to stand up for crypto, and demand answers from the SEC.

Congress is moving at a glacial pace with the four crypto bills on the docket. But, hopefully, regulatory clarity will come sooner than not, and we can stop nitpicking ancient statutes with the SEC and New York judges.

For now, always remember: it’s now How-ey Test, but why.

Meme of the Day

Wait times are... short. 😅

Crypto 101

Howey Test Criteria: You’re probably still wondering about those four criteria the Howey Test used to determine whether or not an asset qualifies as an investment contract and should be considered a security.

Without further ado, they are:

1. An Investment of Money

2. In a Common Enterprise

3. With the Expectation of Profit

4. To Be Derived From the Efforts of Others.

The Last Sip

The Howey Test was created in 1946, but is it too old to be applied to crypto? To help you decide, let’s talk about some other things that happened in 1946.

3. The “Bikini” was released in Paris. Scandalous!

2. War trials were held in Nuremberg and Tokyo. Scandalous!

1. Baby Boomers were created.

Stay Caffeinated,

Coffee & Crypto Team

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.