Ethereum – like bitcoin – is not a security, says SEC executive
Ethereum, the world’s second-largest cryptocurrency by market capitalisation, will not be regulated as a security, a leading official at the US Securities and Exchange Commission (SEC) said on Thursday night.
William Hinman, SEC Corporation Finance Director, said in an interview at Yahoo Finance’s All Market Summit in San Francisco that, similar to its declaration on bitcoin, ethereum was not to considered a security and, therefore, would come under the SEC’s regulatory oversight.
To be traded as a security, an asset must be registered with the SEC, and Hinman’s comments further clarified the SEC’s stance on cryptocurrencies following similar comments on bitcoin by the regulator’s chairman last week.
Hinman said: “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.”
This echoed the comments of SEC chairman Jay Clayton, who last week said in an interview on CNBC that if bitcoin were to be considered as a replacement for fiat currencies, then “that type of currency is not a security”.
The SEC’s line on crypto assets is strictly by the book: if it behaves more like a commodity or a currency then it is not a security, and by this measure cryptocurrencies are not securities.
ICOs are securities
If, however, a token is used for a company to raise funds in an initial coin offering (ICO) – then, like its equity counterpart, the initial public offering (IPO) – it will be considered as a security.
Hinman made this distinction: “Can a digital asset originally sold in a securities offering eventually be sold in something other than a security? How about cases when there’s no longer a company? I believe in such cases, the answer is a qualified ‘yes’.”
He added that if the networks over which transactions are recorded are truly decentralised and buyers have no expectations of managerial stewardship or other controlling influence – as opposed to when trading the equity of a company – then a coin is not a security.
“Simply labelling a coin or token as an investment opportunity does not make something a security,” he said.