Since the inception of Cryptocurrencies, rules and regulations have been a significant concern to investors and blockchain believers. Most recently, the Securities and Exchange Commission (SEC) have been cracking down on Cryptocurrencies to determine if they comply with the legal requirements of digital asset listings.
A security is a form of investment which offers a guarantee or fulfilment of return. For a security to operate legally, it must be registered with the SEC and comply with all legal requirements. Initial Coin Offerings (ICO’s) have been heavily scrutinised in the U.S by the SEC after many fraudulent and unregistered ICO’s have surfaced which has led to U.S residents being ruled out of investing in most ICO opportunities. Due to this scepticism, popular Cryptocurrencies like Bitcoin and Ethereum are now also being investigated as potential securities as they help facilitate the crowdfunding operations within ICO’s. This has created a lot of fear, uncertainty, and doubt (FUD) in the markets and contributed to the downward price action.
After significant speculation and market fear, William Hinman, SEC Director of the Division of Corporate Finance has announced that Bitcoin (BTC) and Ethereum (ETH) will ‘not’ be considered as securities. In an interview with CNBC, he said "We're comfortable viewing these as items that don't have to be regulated as securities”. Furthermore, he elaborated by explaining how a security is defined by the SEC.
The two main things to look out for:
- Is there a working product?
- Is there a third-party promoter?
If there is already a working product and no third-party promoter (i.e. Bitcoin and Ethereum), then the investment is most likely considered ‘not a security’.
Moving forward, everything continues as normal and there are no further concerns when investing in Cryptocurrencies like Bitcoin and Ethereum.
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