On Wednesday, the US Securities and Exchange Commission, reiterated their stance that the majority of ICOs are legally considered securities. On Thursday, the regulatory body further clarified that Bitcoin and Ethereum were decentralized enough that they are not considered to be securities. Bitcoin saw a slight increase in prices on the news, but Ethereum saw gains of more than 10% following the statement.
Is Ether A Security?
Securities are investments that are offered by a central individual or group and traded on secondary markets, with the promise of returns to the investor. Stocks and shares are a good example of securities. The SEC’s role is to protect those that invest in securities, effectively by monitoring the companies or central organisations that offer the securities.
In the case of Bitcoin, of course, there is no central organisation. This decentralization means that Bitcoin is not a security and does not fall under the remit of the Securities and Exchange Commission.
According to the SEC, the now decentralized structure of the Ethereum network means that there would be no benefit or real point in governing Ether. It has long been accepted that Bitcoin is not a security, but there has been debate over Ethereum. Hence, when the announcement was made, Bitcoin price saw a modest increase of around 5%, but Ether’s price rocketed by a more impressive 10%.
Does It Even Matter?
There are a lot of legal requirements that securities must meet. They must be registered and disclosed. Investors must be accredited, too, and Ethereum did not follow any of these rules when it launched, like most tokens and cryptocurrencies. If the SEC had ruled that it was a security, it could have had serious consequences for Ether, so the news was certainly positive.
However, some caution remains. The SEC’s director of the division of corporate finance, William Hinman, 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.” He was careful to point out that this his view of the current state of ether; it doesn’t mean that the SEC won’t investigate Ethereum for its launch, when it was not decentralized, so there are still question marks regarding what comes next for the 2nd largest cryptocurrency.
What About ICOs?
Prior to the statement on Ethereum, the SEC held an open summit to discuss securities trading, and specifically on the trading of ICOs and tokens. During this debate, SEC Chairman, Jay Clayton, said that “much of what I have seen in the ICO or token or ICO space, is a security offering.” This could have ramifications for a lot of current ICOs, as well as a lot of the currencies that have already come out of ICO, because none would have been registered at the time of their launch.
For now, the cryptocurrency market is enjoying some resurgence as a result of the SEC statements, but with questions remaining over what action, if any, will be taken against existing ICOs and currencies, and even the question of whether a Bitcoin ETF will be allowed, will lead to further debate, and the price fluctuations that come with them.