Cryptocurrencies strongly gained Thursday after a top SEC official said Bitcoin and Ether, the two leading cryptocurrencies in that order, cannot be treated as securities, but some initial coin offerings could be.
"When I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise," William Hinman, director of the division of corporation finance at the US Securities and Exchange Commission said in a speech at the Yahoo Finance All Markets Summit: Crypto in San Francisco on Thursday.
"The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception," he said.
Turning to Ether, Hinman said, "Putting aside the fundraising that accompanied the creation of Ether...the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions."
Thus, application of the disclosure regime of the federal securities laws to the offer and resale of Bitcoin and Ether would seem to add little value, he added.
The official noted that there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise and in those cases, the application of the securities laws will protect the investors who purchase the tokens or coins.
Hinman said ICOs by itself cannot be a security. "Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers."
When an asset is offered and sold in a way that causes investors to have a reasonable expectation of profits based on the efforts of others, it can be a security, the official said.
"The digital asset itself is simply code," Hinman said. "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."
by Jyotsna V
For comments and feedback: contact editorial@rttnews.com