Cryptos Considered by the SEC to be Securities Transactions
Although Bitcoin (BTC) and Ethereum (ETH) are not considered securities by the Securities and Exchange Commission (SEC), the transactions that distribute them will be considered by the agency as securities transactions.
This is the latest opinion on cryptocurrency from William Hinman, Director of the Corporate Finance Division of the Securities and Exchange Commission (SEC). It has also stated that the disclosure regime of the US Securities Act adds little value to the already decentralized Bitcoin and Ethereum networks.
In an official statement last June at the Yahoo All Markets Finance Summit, Hinman reiterated several important points. For example, where the digital asset represents a set of rights that give the holder a financial interest in a business once it has been offered as security, this is unlikely to change. In these cases, calling the transaction an initial offer of coins – or ‘ICO’, a sale of a ‘token’ – will not remove it from the scope of US securities laws.
According to Hinman, in cases where no longer invested in any central company or where the digital asset is sold only to be used to buy a good or service available through the network in which it was created, then it would be a value. This means that for these cases it is indeed a value transaction. So there is every possibility to share information, transfer value and record transactions in a decentralized digital environment.
The official also spoke about the various applications that can be created with the technology provided by blockchain platforms. It has also highlighted the benefits at the time of supply chain management, licensing of intellectual property rights, transfers of ownership of shares and many others.
Certainly, with Director Hinman's statements, the SEC is taking a stand on what can be seen as real value in creating accessible applications. This is revolutionary to a certain extent, as transactions can now be executed electronically with an immutable public record and without the need for a trusted third party to verify the transactions.
More and more people believe that blockchain technology will transform e-commerce as we know it. So you can feel in the community a strong excitement and great speculative interest in this new technology. This year, however, the SEC has been more skeptical than favorable to cryptocurrency and this is mainly due to fraud cases.
“In the ICOs I have seen, overwhelmingly, promoters tout their ability to create an innovative application of blockchain technology,” Hinman said, adding that investors are passive and that marketing efforts are rarely directed at symbolic users.
Although Ethereum and Bitcoin are not a securities themselves, Hinman believes that the way they are sold, and the reasonable expectation of buyers, is paramount.
“The purchaser usually has no choice but to rely on the efforts of the promoter to build the network and make the enterprise a success. At that stage, the purchase of a token looks a lot like a bet on the success of the enterprise and not the purchase of something used to exchange for goods or services on the network.” Hinman concluded.