Ethereum Is Not A Security, Says SEC Chairman Jay Clayton

News | March 14, 2019 By:

Jay Clayton, chairman of the US Securities and Exchange Commission (SEC), has agreed to the analysis of SEC Director of Corporation Finance William Hinman that found ethereum and cryptos like it are not securities.

In June 2018, Hinman said at a conference that the SEC does not consider ethereum to be a security because current offers and sales of ether are not securities transactions.

“In cases where there is no… central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created, that digital asset is “out of the purview of US securities laws,” Hinman said at the time.

In an blog post, Coin Center Executive Director Jerry Brito said that they worked with Rep. Ted Budd to send a letter co-signed by several colleagues to Chairman Clayton asking whether he agreed with Hinman’s approach.

In response, Clayton said that he agrees with certain statements concerning digital tokens in Hinman’s speech.

“I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument,” Clayton said. “A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

Some crypto industry executives have provided expert commentary on the significance this has on projects in the space, indications of future regulation and the influence on institutional investment.

Vaibhav Kadikar, Founder & CEO of multi-party decentralized trading platform CloseCross, said that confirmation from SEC Chairman Clayton that ethereum is not a security is extremely encouraging for projects in the space and institutional investors, as the criterium for crypto securities becomes more concrete. However, as regulation is inherently slow moving, he said it is unlikely that this assertion will have any long term effect on the rapidly evolving cryptosphere.

“While we should commend the SEC on these positive developments, reestablishing the level of decentralization has previously been spoken of as a determining factor and ultimately offers nothing new,” Kadikar said. “It’s good to have a second verbal confirmation, but other than a tax impact on traders and HODLers, it doesn’t change much for the entrepreneurs creating blockchain use cases.”

Lars Seier Christensen, Chairman of Concordium, said that Clayton’s statement is a good first step towards overall clarity on future blockchain and cryptocurrency regulation.

“We believe regulators will increasingly be requiring ID-verification and the ability to track the provenance of cryptocurrency,” Christensen said. “Not all blockchains can deliver this but the ones that can definitely have a better chance of seeing mainstream adoption. “I think cryptocurrency exchanges are glad to see regulatory guidance in this case and in others as well. Understanding how to deal with a tradeable asset and the rules you need to adhere to makes it easier for the exchange to provide a valuable service to their customers.”