June 14th 2018

A Securities and Exchanges Commission (SEC) official explicitly stated today that he does not consider bitcoin and ether (the native cryptocurrency of the Ethereum network), to be securities.

Speaking at the Yahoo Finance All Markets Summit in San Francisco, William Hinman, the  Director of the Division of Corporation Finance at the SEC, gave a speech about whether digital assets should be considered as securities.

Hinman pointed out that the network upon which bitcoin functions has always been decentralised and therefore there is no central third party “whose efforts are a key determining factor in the enterprise”.

Therefore he concluded: “Applying the disclosure regime of the federal securities laws to the offer and resale of bitcoin would seem to add little value.”

However, whether or not ether was a security has always been more debatable, given that it was originally created as a means to fund the development of the Ethereum network.

In his remarks, Hinman declined to comment on the status of this fundraising itself, but did clearly state that “the present state of ether, the Ethereum network and its decentralised structure, current offers and sales of ether are not securities transactions”.

He continued: “And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value. Over time, there may be other sufficiently decentralised networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.”

This is likely to be good news for Cboe, given that the exchange operator is looking at launching ether futures alongside the bitcoin futures that it already offers.

Indeed, commenting on the news today, Chris Concannon, president and COO at Cboe Global Markets, says: “We are pleased with the SEC’s decision to provide clarity with respect to current ether transactions. This announcement clears a key stumbling block for ether futures, the case for which we’ve been considering since we launched the first bitcoin futures in December 2017.”

A source at one investment fund that holds cryptoassets described Hinman’s comments as a “huge win” for the crypto industry.

“The reason why this is such a big win is that for the bitcoin and blockchain community is that when [regulators] looked deeply at this issue, they found that even if [ether] was offside when it was initially created, that it has evolved into something more.”

The investment fund source adds: “Even for those that initially bought ether at the start, I don’t think they’ll be complaining. I mean, they bought it at something like $1.30 and now it’s over $500, I think they can all live with that.”

It is worth pointing out that Hinman’s speech was provided with the disclaimer that his comments reflected his own personal view rather than those of the Commission. However, Hinman’s remarks echo similar comments about the status of cryptocurrencies made recently by SEC’s chairman, Jay Clayton.