The chief U.S. investment regulator now says that Bitcoin and Ethereum are not securities.
The Securities and Exchange Commission (SEC) point man on cryptocurrencies, William Hinman, is responsible for the decision.
Hinman’s official title is head of the Division of Corporate Finance for the SEC.
This division is also in charge of initial coin offerings (ICOs).
He stated in the same speech that many, but not all, ICOs are securities and will come under the regulatory control of the SEC.
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” Hinman said.
Hinman noted that the central issue in determining whether cryptocurrencies and ICOs were securities was the expectation of a return by a third party.
This means they were looking into whether there was a person or group that sponsored the creation and sale of the asset.
Furthermore, the SEC was investigating whether that person or group played a significant role in its development and maintenance of said asset.
If consumers are promised or are expecting an appreciation in value, and there is a centralized third party, then it can be classified as security.
Hinman made sure to point out that Bitcoin is not a security because it is decentralized.
There is no central party whose work are an important determining factor in the enterprise. Likewise, Ethereum cannot be considered a security because the Ethereum network is decentralized.
The state of other cryptocurrencies was not discussed in this statement.
One cryptocurrency that everyone has their eye on is Ripple (XPR).
Right now, it is part of a lawsuit alleging that it is a security.
The lawsuit contends that, “over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.”
Additionally, a platform like EOS, which is controlled by Block.one, seems to be a likely contender for securities regulations.
EOS’s system of validation, which delegates power to only 21 nodes, may not be enough decentralization in the eyes of the Securities and Exchange Commission.
Hinman defended the SEC’s strict interpretation of securities laws, noting that, “there is excitement and a great deal of speculative interest around this new technology. “
“Unfortunately, there also are cases of fraud.”
Hinman acknowledged that there may still be some confusion over how to determine if any cryptocurrencies and ICOs are securities.
“We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use.”