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The SEC doesn’t consider Ethereum a security, crypto fans rejoice

Many crypto investors and fans are considering this a pretty big win.

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The United States Securities and Exchange Commission (SEC) won’t consider Ethereum a security. As a result, it believes the Ethereum network and its cryptocurrency Ether are outside the purview of U.S. securities law, according to TNW.

Speaking at the Yahoo Finance All Markets Summit in San Francisco, California, SEC director 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. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.

Hinman went on to suggest the status of cryptocurrencies as securities could be contingent on how “decentralized” they are.

He explains,

If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.

Earlier this month, SEC chairman Jay Clayton told CNBC the agency doesn’t consider Bitcoin a security.

Interestingly, these decisions do not necessarily mean consumers can’t use Bitcoin and Ethereum as securities.

As Hinman concludes,

If a promoter were to place Bitcoin in a fund or trust and sell interests, it would create a new security. Similarly, investment contracts can be made out of virtually any asset (including virtual assets), provided the investor is reasonably expecting profits from the promoter’s efforts.

It will be interesting to see just how long SEC sticks with this conclusion. I bet that eventually both Bitcoin and Ethereum will be considered securities. When that happens, watch for the regulatory headaches to begin.

Do you have any stock in cryptocurrencies? Do you believe these new regulations will affect anything? Let us know in the comments.

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Bryan considers himself a well-rounded techie, having written articles for MakeUseOf, KnowTechie, AppAdvice, iDownload Blog. When he's not writing, he's being a single dad and rooting for his alma mater, Penn State, or cheering on the Patriots.

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