A few weeks ago, the market was highly affected – in a negative way, that is – after the SEC announced that it’s investigating whether some of the most important coins of the moment, including Bitcoin and Ethereum, are securities.
According to CNBC, BTC and ETH are not securities, but some ICOs, instead, are considered securities and are expected to come under the regulatory control of the SEC, as well as other relevant securities laws.
If there is an expected, ROI, it’s a security!
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” said Head of the Division of Corporation Finance at the SEC, William Hinman.
He also revealed that the main issue in determining if cryptocurrencies and ICOs are securities was the expectation of a return by third parties. Specifically, if there was a person or group that sponsored the creation of the asset, who also played a significant role in its development. As for the ones who purchased the asset, the key was to find out if they are seeking a return of their initial investment.
Finally, if a centralized third party exists, as well as purchasers with an expectation of a return, this means that the token is a security.
William Hinman gave some specific examples in which cryptocurrencies would not receive the security status and would now come under the purview of the organization.
It’s all about decentralization
When it comes to Bitcoin, the main reason the why the world’s biggest crypto asset, in terms of market cap, is not a security is the fact that it’s completely decentralized: there’s no central party able to be a determining factor in the enterprise. Ethereum is in a similar situation, as it’s network is also fully decentralized.
It would’ve been very interesting for the SEC to discuss the status of other major cryptocurrencies, like Ripple, which was actually the subject of a lawsuit claiming that it was a security.
“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,” he concluded.