Bitcoin And Other Cryptocurrencies Are Not Securities, SEC Official Says, But Initial Coin Offerings May Be

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Bitcoin and other cryptocurrencies rose today on news that a United States Securities Exchange Commission (SEC) official declared that they aren’t securities. Despite that good news for some crypto, some initial coin offerings might still be considered securities under the United States regulatory body’s rules.

According to a CNBC report, William Hinman, head of the Division of Corporation Finance at the SEC, discussed the attributes that made some crypto assets like digital tokens a security while he pointed out that other cryptocurrencies like Bitcoin and Etherum did not have those features and should be treated like commodities similar to gold.

At Yahoo Finance’s All Market Summit: Crypto in San Francisco Hinman said, “Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers.”

Additionally, the SEC has no plans to change its definition of securities to include Bitcoin specifically. The determining factor that keeps Bitcoin from being labeled a security is the fact that it’s decentralized. Because of that, there’s no central body that supports the success of Bitcoin. The SEC considers Ethereum to have the same type of decentralized setup as Bitcoin.

Yahoo Finance reported that the SEC’s official position is that “the name isn’t important, but the way in which it’s sold, promised, and behaves is the key deciding factor.”

Hinman made it clear that crypto might originally be sold as a security and later turn into a commodity or currency. Labeling the offerings “tokens” or “coins” ultimately won’t determine how they’re classified, though. If a cryptocurrency network is decentralized and purchasers no longer have an expectation of third-party managerial stewardship, then a coin is not considered a security by the SEC.

Additionally, in his remarks, Hinman noted that the SEC won’t change its rules for cryptocurrencies, but it will apply existing rules where the rules should be used. The SEC official also didn’t speak to the broader range of altcoins available. He said, “Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.”

If the SEC had declared Bitcoin and Ethereum securities, then that news likely would’ve caused a significant selloff on markets. However, this news is relatively positive, and prices rose modestly, putting prices back in the green. In all, today’s announcement turned out positive for cryptocurrency as a whole, and it’s one step towards stabilizing the markets as they experience the growing pains of regulations throughout the world.