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Today, Financial Times reported that a director at the Securities and Exchange Commission, William Hinman, hinted that bitcoin and ether might be classified as “commodity” tokens, rather than as “security” tokens. An exception could also apply to other coins – especially older ones, but the jury is still out.
Although the director’s comments do not reflect that this classification is certain, it does indicate that there is a very good chance that it will come to pass in the very near future. His specific mention of bitcoin and ether, and the fact that the SEC is not currently scrutinizing either is also a strong hint at what will soon be announced.
These comments by Hinman were the first time that the SEC had ever made any regulatory related comments regarding any specific coin. In the past, all SEC statements and decisions were aimed at the industry as a whole. The director said:
“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,”
This would be fantastic news for both coins since being classified as a security means that a token comes under much greater scrutiny by the SEC. A security token association means registering with the SEC and abiding by disclosure laws as well as conforming to existing investor protection requirements.
With even just these non-committal comments from the director, the prices of both bitcoin and ether jumped up.
Despite past criticism of the SEC for being overly cautious, and potentially restrictive regarding cryptos, this new position would seem to show that the SEC does not want to stifle innovation while still doing its job to protect investors.
The SEC has a basic set of flexible tests which determine if a token should be classified as a security or not. They are part of what the SEC calls the “Howey Test” (circa. 1946). If all four of the following requirements are met then there is a very good chance that the investment under consideration would be classified as a security:
1. There is an investment of money
2. There is an expectation of profits
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party
Based on the above tests, most new ICOs will probably be initially classified as security tokens.
Now the question is, will these comments and opinions be set in stone?
Read the full Financial Times article here
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