On March 12, the cryptocurrency and blockchain legislative advocacy group Coincenter published correspondence between the Securities and Exchange Commission (SEC) chairman Jay Clayton and representative Ted Budd. The letter explains that Clayton and the SEC’s staff analysis confirms that Ethereum and similar cryptocurrencies are not subject to securities laws.
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SEC Chairman Jay Clayton Agrees That Certain Cryptocurrencies Are Not Securities
It seems the SEC chairman Jay Clayton agrees with the agency’s head of the Division of Corporate Finance, William Hinman. Last July, news.Bitcoin.com reported on Hinman’s opinion that that cryptocurrencies like BTC and ETH are not securities. “If the network on which the token or coin is to function is sufficiently decentralized” then the currency is likely not a security explained Hinman during the Yahoo All Markets Summit. So a few months ago, the blockchain legislative advocacy group Coincenter sent a letter co-signed by representative Ted Budd that asked the SEC chairman if he agreed with Hinman’s valuation.
“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract,” Clayton’s response read.
The SEC chairman’s letter continued:
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 Has Given His Opinion Before
Clayton didn’t mention which specific cryptocurrencies met this criterion, but Coincenter’s published blog post suggests that the letter is a confirmation that “Ethereum (and cryptos like it) are not securities.” Coincenter’s founder Jerry Brito thanked Budd for helping reach out to the SEC chairman. “Thanks to representative Ted Budd for his leadership getting regulatory clarity for cryptocurrencies,” Brito tweeted on Monday.
Clayton’s statements to Coincenter and representative Budd echo prior statements he made in June 2018 during an interview with CNBC. During that conversation, the chairman spoke specifically about bitcoin.
“Replace the dollar, the yen, the euro with bitcoin — That type of currency is not a security,” Clayton stated at the time. “Where I give you my money and you go off and make a venture […] and in return for me giving you my money, you say, ‘You know what, I’m going to give you a return.’ That is a security, and we regulate that. We regulate the offering of that security, and we regulate the trading of that security.”
However, Clayton had a different opinion about initial coin offerings (ICO) that have raised billions in the last few years. During a speech last December, Clayton agreed that ICOs were a novel way for entrepreneurs and other businesses to raise capital as long as they follow securities laws. “The novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed,” he said.
It seems that networks like Ethereum and Bitcoin do not fall into that category in Clayton’s eyes as they are sufficiently decentralized. Ripple may not qualify under Hinman and Clayton’s interpretation however. Ripple faces a class-action lawsuit where the plaintiffs allege XRP falls under security laws and must be regulated by the SEC’s framework.
What do you think about Jay Clayton’s response to Coincenter and representative Budd? Let us know what you think about this subject in the comments section below.
Image credits: Pixabay, SEC, and Wiki Commons.
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