The Securities and Exchange Commission’s head of the Division of Corporate Finance, William Hinman, stated during the Yahoo All Markets Summit today in San Francisco that cryptocurrencies like BTC and ETH are not securities. Soon after the SEC executive made the statements, cryptocurrency markets saw some gains as BTC rose $350 immediately after the news went public.
SEC Executive: Decentralized Cryptocurrencies Are Not Securities
The SEC executive who is in charge of overseeing the cryptocurrency and initial coin offering (ICO) landscape, William Hinman, stated today that cryptocurrencies like bitcoin core (BTC) and ethereum (ETH) are not considered securities. Hinman stated that some ICOs may be considered securities but the decision is based off a factor of decentralization.
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” Hinman explained at the Yahoo Summit. “This also points the way to when a digital asset transaction may no longer represent a security offering. If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract.”
Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.
A Digital Asset That Involves a Third Party and Drives the Expectation of a Return Is Likely a Security
Hinman noted that some ICOs tout that they are decentralized and are clearly not while others are obviously fraudulent. The SEC executive further emphasized that he believed networks like BTC and ETH are decentralized which makes them not fit within the definitions of a standard security.
“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.”
Hinman also details some of the main factors people should consider when assessing whether or not a cryptocurrency is a security. “Primarily, consider whether a third party — be it a person, entity or coordinated group of actors — drives the expectation of a return,” Hinman states.
The Division of Corporate Finance executive concludes that there are exciting legal times ahead and he is pleased to be a part of the process. Hinman’s speech was very positive towards cryptocurrency solutions and blockchain technology adding:
What I believe may be most exciting about distributed ledger technology — that is, the potential to share information, transfer value, and record transactions in a decentralized digital environment. Potential applications include supply chain management, intellectual property rights licensing, stock ownership transfers and countless others.
What do you think of William Hinman’s statements today? Let us know in the comment section below.
Images via Pixabay, Yahoo Finance, and Bitcoin Wisdom.
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