According to the latest announcement, the SEC claims Cryptocurrencies like Ethereum or Bitcoin are not to be considered as Securities and that ICO’s may or not be a deemed securities that fall under regulatory control of the SEC and relevant securities laws.
As a key speaker at the Yahoo! All Market Summit, a Crypto event that took place in San Francisco on 14th June 2018, William Hinman the Director of the SEC’s division of Corporation Finance said;
“The token — or coin or whatever the digital information packet is called — all by itself is not a security, just as the orange groves in Howey were not. Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” Hinman continued.
“The digital asset itself is simply code. But the way it is sold — as part of an investment; to non-users; by promoters to develop the enterprise — can be, and, in that context, most often is, a security — because it evidences an investment contract. And regulating these transactions as securities transactions makes sense.
Surrounding the issue that Ethereum may be classified as a Securities, as statements from various regulatory officials have got Investor worried and getting a mix message as to whether the second most popular Cryptocurrency will be subject to stricter US regulation. The community has made claims that Ether is too decentralized to be labelled a security and that there is no central authority to charge in the event of lawsuit.
Ethereum was proposed in late 2013 by Vitalik Buterin, a Cryptocurrency researcher and programmer. Development was funded by an online crowdsale that took place between July and August 2014 and has since become one of the most established Blockchain-based project recognized by institutional investors in the recent years
After months of speculation since the remark made by the SEC, there was a great sense of unease in the Cryptospace, as Investors await the decision of whether Ethereum would be deemed a security according to US laws, making it subject to more stringent rules than Bitcoin. If the SEC declared Ether a security, any websites that is offering to trade Ethereum or ICO based token, is required to obtain and be granted license from Federal regulators.
This would spell disaster for many of the projects that have raised money using an ICO and could mean the end for many startups founders that are forced to comply or face hefty charges and even jail time in the worst case scenario
As for now, regulators are keeping a close eye on the ICO market to determine whether a Cryptocurrency is to be classified as a Security, leaving us with the impression that majority of Ethereum based tokens are deemed to be Securities as the agency tries to evaluate if;
- ICO is offering a Stake in the Company
- the extent to which third parties are involved in the creation or exchange of value
Since there are no formal guidelines on how to label or categories a Cryptocurrency to traditional Securities, the SEC is primarily looking at whether a token is being used simply for the exchange of a good or service through a distributed ledger platform, or whether the value of the cryptocurrency is dependent on the actions of a third party for it to rise in value.
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” William Hinman
Now, with the recent SEC’s decision, Investors enjoy more clarity with respect to current Ether transactions. The Crypto community can rejoice, knowing that Ethereum itself is not subject to securities laws even though tokens released on top of its Blockchain may receive scrutiny from the SEC in the near future
Regardless of that, US Securities Commission has shown willingness to take a more pro-innovation approach by addressing that the world’s two most popular Cryptocurrencies; Bitcoin & Ethereum are not Securities. Since Bitcoin inception, authorities have begun recognizing Cryptocurrencies as not only disruptive technology but also as a Financial instrument that needs regulatory oversight, while advising that those interested in initial public coin offering to consider working with the SEC to help regulate and protect Investors from fraudulent scams that seem to plague the CryptoSpace