SEC Chairman Jay Clayton: Bitcoin No, Crypto ICO Tokens as Securities Yes
SEC Chairman Says Cryptocurrencies Are Not Securities
In a major development earlier today, SEC Chairman Jay Clayton revealed that he doesn’t believe cryptocurrencies like bitcoin are securities.
Clayton revealed his opinion in a discussion with CNBC’s Bob Pisano. The two were discussing the future of blockchain and cryptocurrencies, including potential regulations from the SEC that could affect investors and impact the future of the industry.
Overall, Clayton was positive about cryptocurrencies and the future of bitcoin. He explained, for example, that he sees distributed ledger technologies (like blockchain) as having “incredible promise” both inside and outside the financial markets.
Clayton also explained that he viewed cryptocurrencies as a potential replacement for fiat currencies:
“Distributed ledger technology [has] incredible promise. It can drive efficiencies not only in the financial markets but in a lot of markets…two areas in financial markets where distributed ledger technology has come to the fore. Cryptocurrencies. These are replacements for sovereign currencies. Replace the Dollar, the Yen, the Euro, with bitcoin.”
This is when Clayton revealed something important.
“That type of currency is not a security.”
In other words, a blockchain-based token designed to replace a national currency should not be considered a security. THIS IS HUGE NEWS…at least for mainstreamers.
This shouldn’t be a surprise to anyone who understands blockchain-based cryptocurrencies. When you’re buying bitcoin, you’re not buying any share of a company. You’re not buying a stake in the success of someone else’s venture. Instead, you’re just buying an asset.
Clayton followed up by explaining what, exactly, a security is – and why many cryptocurrencies should not be considered securities:
“Let me turn to what’s a security. A token, a digital asset, where I give you my money, and you go off and make a venture. You have some company you want to start…in return for me giving you my money, you say I’m going to give you a return. And you can get a return in the secondary market by selling your token to somebody = that is a security, and that is regulated, both the offering and trading ”
It’s easy to reference the Howey Test in a situation like this. The Howey Test is a measurement under US law to determine whether or not an asset is a security. Anything can be a security if it violates the Howey Test (see HoweyCoin) – whether that something is a cryptocurrency or a piece of paper. It’s a reference to a Supreme Court decision where a Florida orange farmer – named Howey – was selling stakes in his farmland to investors. The government accused Howey of conducting an unregistered sale of a security, while Howey argued the opposite. The end result was the creation of the Howey Test, which is used today to determine whether or not an asset is a security.
Ultimately, it’s not a surprise to see that cryptocurrencies aren’t considered securities under US law. You’re not buying a stake in some enterprise when you buy most cryptocurrencies. However, it’s refreshing to see the Securities and Exchange Commission adopt the same view. It shows they’re investigating the technology and committed to providing a fair outcome that works for market participants.
Top Soundbites From Jay's Bitcoin Securities, ICO Tokens & ETFs Talk
– Pisano: “Common enterprise with an expectation of earning a profit – most icos are securities – [Clayton]: correct” …
– [Pisano]: are you going to make a clear statement – [Clayton]: Bob I hope I just did , Yes, if it’s a security
– [Clayton]: the market is 19 trillion dollar market, the securities market is – if you have an ICO, or stock, and want to sell it in a private placement , follow the rules – there is no secondary trading – come see us, file financial statements, file disclosure, and we are happy to help you do.
– [Pisano]:What about alt coins – is ether a security – ripple is in a lawsuit? [Clayton]: while didn’t want to comment on specific crypto asets on security or not.
– [Pisano]: BITCOIN ETFs – a lot of issuers are waiting – what criteria does the SEC need, Futures market has been out for six months now, what types of things… [Clayton]: we are going to need in any asset class – if we are going to approve – asset verification and communication to the marketplace.