SEC Chairman Agrees Cryptocurrencies Like Ethereum Are Not Securities

News and Analysis

U.S. Securities and Exchange Commission (SEC) chairman Jay Clayton confirmed an existing analysis stating that the world’s second-largest cryptocurrency and other tokens of similar characteristics did not fall within the securities category under SEC standards.

Last year, SEC Director of Corporation Finance William Hinman said during a speech that Ethereum did not exhibit the properties of a security. At the time, he explained that he did not see a central group as being responsible for the cryptocurrency.

On March 12, the cryptocurrency and blockchain legislative advocacy group Coincenter published correspondence between Jay Clayton and representative Ted Budd. Without mentioning Ethereum directly though, the letter explains that the SEC’s staff analysis confirms that such cryptocurrencies are not subject to securities laws.

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial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,” Clayton wrote in a letter dated March 7.

Coincenter’s published blog post suggests that the letter is a confirmation that “Ethereum (and cryptos like it) are not securities,” while its founder Jerry Brito thanked Ted Budd for helping reach out to the SEC chairman.

As reported by CoinDesk, Clayton’s letter echoes comments he made last year, when he likened digital assets to tickets for a new play. At the time, Clayton suggested that a group of investors might be promised “a suite of tickets” in return for funding the play, which would qualify these tickets as securities.

However, if at a later date, tickets are only sold to give each theatergoer a chance to see the play, “that’s decentralized,” he added.

This aspect of decentralization is important, according to the SEC chairman. He’d earlier touched on the point while discussing Bitcoin, noting that “generally an asset like Bitcoin, where [it’s] decentralized,” does not fit within a securities designation.

“No one is creating it for their own … control of bitcoin, it’s designed to be a payment system replacement for sovereign currencies,” Clayton said. “We’ve determined that that doesn’t have the attributes of a security … as far as I’m concerned, that’s designed to be akin to the dollar, the yen, the euro … and it operates that way. People who purchase it are expecting it to operate that way.”

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