While somewhat expected, a top official at the SEC has seemingly confirmed that Ethereum trades are not subject to federal securities laws.
“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,” William Hinman, who leads the SEC’s corporation finance unit, said in a Thursday speech in San Francisco.
Hinman added that “applying securities laws to Ether adds little value.”
And while the results of this off the cuff statement are unclear from the taxation or regulatory perspective, Ether is rallying on the news…
During CNBC’s reporting on this speech they said that Hinman said “if there is a centralized third party, along with purchasers with an expectation of a return, than it is likely a security… The key here of course being that Ether is decentralized.”
This would suggest that Bitcoin also is NOT a security given its decentralize nature.
“Can a digital asset originally sold in a securities offering eventually be sold in something other than a security?” he asked. “How about cases when there’s no longer a company [involved]? I believe in those cases answer is a qualified yes.”
Hinman said “form is disregarded for substance,” in the SEC’s thinking. The economic realities, he said, are more important than how something is labeled.
If a cryptocurrency network is sufficiently decentralized and purchasers no longer have expectation of managerial stewardship from a third party, a coin is not a security, Hinman added.
Similarly, labeling an investment opportunity as a “coin” or a “token” does not make something not a security, Hinman added.
As Yahoo reports, the commission’s policy is in line with what SEC Chair Jay Clayton said recently about bitcoin: that cryptocurrencies are not securities and the definition of “security” would not change to include bitcoin. (Clayton said digital tokens were securities, but cryptocurrencies were not.) Hinman’s announcement marks the official position of the SEC: the name isn’t important, but the way in which it’s sold, promised, and behaves is the key deciding factor.
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