Bitcoin (BTC) & Ethereum (ETH) are NOT Securities Says USA's SEC Director

The Securities and Exchange Commission (SEC) Director of Corporate Finance William Hinman said during a speech at the Yahoo Finance All Markets Summit in San Fransisco that the Ethereum network and its cryptocurrency Ether do NOT constitute securities — and as such are out of the purview of US securities law.

Hinman also said the test to determine if a cryptocurrency should be regulated as a security would likely be contingent on the amount of decentralization.

“If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.”

Hinman also mentioned that even though Bitcoin (BTC) & Ethereum (ETH) are NOT securities as such--businesses could bundle them into a trust, fund or investment contracts and when interests are sold in those investment vehicles where the investor is reasonably expecting profits from the promoter’s efforts, would create a new security.

This is a big deal because it opens the gate for institutional money to invest in the space with a lot more clarity and less regulation, so be on the lookout for a lot more ETFs and other cryptocurrency investment vehicles in the near future. The latest statement by the SEC was primarily about ETH (BTC was previously in the clear as being placed in the security category).

In summation, the reason the SEC gave for declaring ETH (and BTC) will not be regulated by the SEC is due to the amount of decentralization and that ICOs released on ETH were also decentralized and didn’t have managerial expectation.

Other Cryptocurrencies likely to also NOT be considered securities IMHO would be Litecoin (LTC) due to it being a fork/clone of BTC. Also EOS even though it only currently has 21 active block producers (the EOS blockchain is optimized for very fast network transaction speeds and scalability), those Block Producers (BPs) are voted into their blockchain producer positions by possibly every EOS holder in the world every two minutes.