SEC Says Bitcoin is Not a Security, According to Letter to Cipher Technologies


Cipher Technologies Bitcoin Fund applied to become an “investment company.”

Due to multiple concerns that have not been addressed, and the fact that they plan to put their assets in Bitcoin, their request has been denied.

The cryptocurrency industry has to answer to multiple authorities in the financial industry, despite not being considered traditional currency. One of the biggest concerns for assets with the Securities and Exchange Commission is whether the asset is deemed a security. While there have been many cryptocurrencies to be deemed securities, one asset is safe – Bitcoin.

The SEC’s Division of Investment Management staff recently issued a letter to Cipher Technologies Bitcoin Fund, which filed a registration statement to become a closed-end interval fund and an “investment company,” as reported by The Block. In their request, Cipher stated that Bitcoin is a security. However, the SEC staff did not agree.

Based on the Howey test, which analyzes assets, and the current framework by the SEC for analyzing digital assets, Bitcoin isn’t a security at all. This framework was only issued this year, but it is clear that Bitcoin won’t be controlled by the SEC.

The letter stated,

“Among other things, we do not believe that current purchasers of bitcoin are relying on the essential managerial and entrepreneurial efforts of others to produce a profit.”

The letter continues, stating that Cipher doesn’t have the proper criteria to be called an “investment company,” based on the requirements shown in the Investment Company Act. It concludes by informing Cipher that it has “inappropriately filed on Form N-2,” since it plans to invest every asset under the cryptocurrency.

If Bitcoin were deemed a security by the SEC, there would be a slew of other problems, as it would be an “unregistered publicly-offered security.” The staff told Cipher that it wasn’t dealing with multiple “legal and investor protection issues.” Concerns raised earlier this year were brought up in the letter, including

“valuation, custody, and potential manipulation in the bitcoin market.”

The SEC expressed that no further review will be performed, considering the incorrect registration of Cipher. If there are other structures that Cipher wants to propose, then the SEC would be open to another review.

This letter, in no way, establishes a regulation or binding precedent, but it does show a public confirmation that the SEC doesn’t see Bitcoin as being a security, which may give some direction to the industry. Their policy also indicates that the SEC is holding onto a framework that was previously issued for guidance, showing with digital assets should be and should not be considered securities.

The confusion over how to classify cryptocurrencies has been an ongoing struggle, as multiple agencies and authorities in the United States cover different regulations of the industry. However, the SEC has recently issued a letter to one of the companies applying to register, indicating that Bitcoin isn’t security at all. How could this impact the rest of the crypto world?

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