Bitcoin and Ether are not securities, an official at the U.S. Securities and Exchange Commission (SEC) said recently.
Speaking at the Yahoo All Markets Summit: Crypto conference in San Francisco, the SEC’s head of the Division of Corporate Finance, William Hinman, said:
“Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value. And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”
The comments led to an immediate spurt in the prices of major cryptocurrencies. Bitcoin jumped by around 7% to $6708 levels (Bitstamp) and Ether soared by 15% to $530 levels (Coinbase).
Crypto industry experts have welcomed the recent statements from the SEC official. Kowala CEO Eiland Glover sees the recent announcement as a “giant relief.”
“Clear guidelines from regulators are part of what drives economic growth in the US. Without this ruling, all crypto-trading until now would be illegal, prices for Ether would plummet, and the pace of US crypto innovation would slow — maybe even go offshore. If you’re an entrepreneur or just someone who loves crypto, you can only cheer when the SEC makes explicit rules about what’s a security and what’s not. It’s rulings like this that allows entrepreneurs to comply with the full spirit of the law and still expand the economy,” Glover said.
Coinsource General Counsel Arnold Spencer believes that the announcement reflects a deeper strategy on the part of the SEC to develop a regulatory platform for cryptocurrencies. He said:
“This is a decision is interesting because, a year ago, the SEC couldn’t and wouldn’t have made this announcement. The SEC’s announcement recognizes that Ether is treated differently now than a year ago, and should be regulated differently. Step by step, the SEC is giving guidance but also setting precedent. With every announcement, the SEC is rolling out a workable regulatory structure for crypto-currencies.”
Spencer welcomed the SEC’s efforts stating that the regulator is “establishing a practical system of regulation” – better than any other federal or state regulator.
“Most states are simply doing nothing, allowing crypto businesses to operate without regulations. Most federal agencies and the State of New York issued one-time restrictive policies or licenses. Only the SEC has made constructive, flexible progress,” he added.
Initial Coin Offerings or Token Sales
With respect to Initial Coin Offerings (ICOs), Hinman clarified, “the token – or coin or whatever the digital information packet is called – all by itself is not a security…Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers.”
Spencer noted that the evolution of cryptocurrencies and ICOs was so rapid that no one could predict how these coins would fit into legal or market structures – neither the companies issuing these coins, nor the regulators.
“Now, the SEC is giving other cryptocurrencies a path toward fitting in. Cryptos will either have to follow Ether’s example and decentralize. Or find a way to fit within the existing securities regs,” he added. “The unanswered question is, ‘What do we do with the coins that have the characteristics of securities?’ Will the SEC continue to take a practical approach, perhaps try some sort of retroactive registration or an amnesty program? That’s the hard question - how do you protect investors without hurting investors? How do initiate regulations of security coins without killing the security coins?”
