SEC – Ethereum is Not a Security

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    Leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum, Coincenter, has just confirmed that SEC Chairman Clayton just confirmed Commission staff analysis that found Ethereum (and cryptos like it) are not securities.

    Coincenter has often asked whether that policy, articulated mid-last year by Director of the Division of Corporate Finance William Hinman, truly represents the policy of the Commission or whether it’s just the opinion of SEC staff. So, a few months ago they worked with Rep. Ted Budd to send a letter co-signed by several colleagues to Chairman Clayton asking whether he agreed with Hinman’s approach.

    He responded to the request:

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    Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinman's June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman's explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.

    News of the thumbs up from the SEC has been well-received in the cryptocommunity.

    Lars Seier Christensen, Chairman of Concordium, the world’s first ID/KYC-ready business blockchain network, commented:

    “The SEC clarification of the status of Ethereum is a good first step towards overall clarity on future blockchain and cryptocurrency regulation. We believe regulators will increasingly be requiring ID-verification and the ability to track the provenance of cryptocurrency. Not all blockchains can deliver this but the ones that can definitely have a better chance of seeing mainstream adoption.

    “I think cryptocurrency exchanges are glad to see regulatory guidance in this case and in others as well. Understanding how to deal with a tradeable asset and the rules you need to adhere to makes it easier for the exchange to provide a valuable service to their customers.”

    Jennifer D'hoir, Senior Advisor at Gide255 (and Partner of Paris Blockchain Week), commented:

    “There is no “one-size-fits-all” approach regarding the legal qualification of a given token or digital asset. The US SEC that has always been very clear about the criteria used to qualify a given digital asset under US law, and has emphasized the need to adopt a case-by-case approach.

    By placing the emphasis on the specific and unique features of digital assets, it underlines the need to re-think how current regulation applies to these new types of assets, and to work on potential adjustments to ensure the sound development of this new market.

    Financial regulators are at the forefront of financial innovation and, as such, are best placed to propose legislative or regulatory adjustments when necessary. This has been the case in Europe, specifically in France, with the introduction of the PACTE Bill and the new regime that will be put in place for ICO issuers (utility token only) and crypto-asset service providers (where tokens do not qualify as financial instruments under MiFID II).

    Hopefully, all of this will foster international cooperation in the field of crypto-asset regulation. Given the global nature of the crypto-asset market, it is indeed key that financial regulators around the world adopt consistent and coherent regulatory approaches vis-à-vis the crypto-asset sphere so that the market can develop in a sustainable manner.”

    And more from Vaibhav Kadikar, Founder & CEO of CloseCross, a multi-party decentralized trading platform: 

    “Confirmation from SEC Chairman Clayton that Ethereum is not a security is extremely encouraging for projects in the space and institutional investors, as the criterium for crypto securities becomes more concrete. However, as regulation is inherently slow moving, it is unlikely that this assertion will have any long term effect on the rapidly evolving cryptosphere. 

    While progressive thinking from the SEC is a positive step forward, Clayton’s statement is simply an indication, not a guarantee, of regulation. Stipulating that the status of a digital asset offered or sold as a security is not static, crypto innovators should remain vigilant in the likely event that the historically fluid crypto security standards change.

    While we should commend the SEC on these positive developments, reestablishing the level of decentralisation has previously been spoken of as a determining factor and ultimately offers nothing new. It’s good to have a second verbal confirmation, but other than a tax impact on traders and HODLers, it doesn’t change much for the entrepreneurs creating blockchain use cases.”

    Coincenter, based in Washington, D.C., is the leading non-profit research and advocacy center focused on public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Their mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.

    They do this by producing and publishing policy research from respected academics and experts, educating policymakers and the media about blockchain technology, and by engaging in advocacy for sound public policy. Learn more about their work.