SEC's Ethereum & Bitcoin Securities Speech Analysis News Breakdown

Breaking Down the Speech Where the SEC Declared Bitcoin and Ether Were Not Securities

Earlier today, the cryptocurrency community erupted with excitement when SEC Director of Corporate Finance William Hinman declared that his agency does not believe bitcoin and Ether are securities.

The remarks were made at the Yahoo Finance All Markets Summit: Crypto.

Now, we have the full text of the speech. The speech was recently posted in its entirety at It provides greater insight into Hinman’s remarks – including what it means for the future of cryptocurrency and why this is huge news for the industry.

Hinman began his speech by talking about the future potential of blockchain and cryptocurrency technology. Hinman sees these technologies revolutionizing a number of different industries:

“Before I turn to the securities law analysis, let me share what I believe may be most exciting about distributed ledger technology – that is, the potential to share information, transfer value, and record transactions in a decentralized digital environment. Potential applications include supply chain management, intellectual property rights licensing, stock ownership transfers and countless others. There is real value in creating applications that can be accessed and executed electronically with a public, immutable record and without the need for a trusted third party to verify transactions.”

Based on this, Hinman seems optimistic about the future of blockchain and cryptocurrencies. He seems to believe the technologies have a valid and valuable future within our economy.

Then, Hinman specifically started talking about SEC v. Howey, the landmark ruling that defined what a security is.

“That test requires an investment of money in a common enterprise with an expectation of profit derived from the efforts of others,” explained Hinman.

“Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey – where interests in the groves were sold to hotel guests, not farmers – tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network.”

Up to this point, it seems like Hinman is taking an overall negative stance against cryptocurrencies and token sales. Based on the comments above, Hinman seems to believe most token sales are security sales.

This is when Hinman clarifies his stance – and the stance of the SEC, as interpreted by him. First, he talked about bitcoin and how bitcoin is interpreted by securities laws:

“And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise. The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.”

This shouldn’t be a surprise. There has been limited concern over whether or not bitcoin is a security. The SEC has also previously stated that bitcoin and similar cryptocurrencies were unlikely to be considered securities.

Next, however, Hinman turned towards Ether and the Ethereum network. That’s when things got interesting:

“…putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

In other words, Ether (ETH) is not currently a security. However, Hinman claims the initial sale of Ether by the Ethereum Foundation may have constituted a security sale – so we’re not totally in the clear yet.

Cryptocurrency Analysts Express Concern Over Hinman’s Speech

Most of the cryptocurrency community had an overwhelmingly positive reaction to the speech. Cryptocurrency news outlets gleefully published headlines about how Ether (ETH) and bitcoin were not securities and that the SEC had confirmed it.

Other members of the cryptocurrency industry, however, were not as optimistic. Many pointed to Hinman’s speech with caution. Hinman, after all, didn’t universally declare that Ethereum and Ether were not securities. Instead, he stated that Ether (as it exists today) is not a security.

If you read between the lines, Hinman seems to suggest that the Ethereum Foundation’s initial sale of Ether during the Ethereum ICO could have constituted a security sale.

President and Chief Legal Officer of Blockchain ( Marco Santori, for example, described the decision as a “really big deal” in a tongue-in-cheek way:

Santori went on to explain, in a series of tweets, that he had concerns with the SEC’s statements.

The first concern is that the SEC wasn’t announcing a law, nor was the SEC even making a formal announcement. Instead, the speech was from an SEC Director. It wasn’t a formal announcement by the organization.

Next, Santori expressed concern with the fact that the Ethereum Foundation’s ICO back in 2014 may have been a token sale:

Santori claims lawyers and the SEC will distinguish between tokens and the sale of that token. It’s possible for a token to not be a security, but still have the initial sale of that token be a security sale.

Santori issued 20 tweets explaining the issue in further depth.

Jerry Brito, Executive Director at Coincenter, expressed similar concern, saying,

Brito was referring to the part of the speech quoted above when Hinman mentioned “putting aside the fundraising that accompanied the creation of Ether.”

He followed it up with:

Nevertheless, Brito says he doesn’t believe the SEC would pursue an enforcement action related to the initial Ethereum ICO. He also believes “there are good arguments to be made that the original offering was a product crowdfund and not a security.”

Final Thoughts On Hinman's SEC Speech on Securities

Ultimately, Hinman’s speech is not an official announcement from the SEC. It’s just the interpretation of the law as reported by one SEC director. This isn’t an official ruling, nor has the SEC made an official announcement about the status of cryptocurrencies.

Despite all of this, however, this continues to be huge news for the cryptocurrency community. Now, the question is: did Ethereum’s ICO back in 2014 constitute an illegal securities sale? Or was it a legal crowdfunding initiative?

See more from the SEC on the status of Cryptocurrencies:

Ethereum NOT a Security: SEC Announces Ether (ETH) Crypto Token Ruling

SEC’s Amy Starr Defines The Differences Between Utilities and Securities

US Securities & Exchange Commission (SEC) Offers ICO Guide on Official Website

SEC Releases ICO Risks, Rewards & Responsibilities Education Campaign



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