Of course they technically could have ruled Ethereum as a security, but if you ask me the chances were very slim what they would.
William Hinman, director of the SEC’s division of corporate finance, said at the Yahoo All Markets Summit Crypto Conference that Ethereum will not be regulated as a security by the SEC, but a lot of ICOs will.
Hinman states that the most important issue in determining whether cryptocurrencies and ICOs are securities, is whether there was a an expectation of a return (profit) by a third party. Specifically, whether there was person or a group that sponsored the creation of the assets and played a significant role in its development and maintenance. So basically he puts a lot of weight on the fact whether a project is decentralized or not, in terms of power structure, and mentions Ethereum and Bitcoin are decentralized and therefore will not be regulated as a security.
This is interesting. A great part of all the projects and ICOs that have been started in the last 12 months are quite centralized when it comes to the power structure. When that is the case, the only way out for those projects and to be classified not as a security, is to prove that their coin or token is for personal use. This is what projects mean with ‘our token is a utility token’.
Of course, with a lot of ICOs some obscure use case ‘forced’ into their project for their token to to this. Or they ask for a donation after which follows some sort of airdrop (which reminds me of the first free 5 lives or 100 credits to play a game or use an app). I guess we’ll see whether this holds up in courts ;-)
Could the SEC have actually deemed Ethereum as a security? I don’t really think so. Hell would have broken loose and a truckload of work would await them immediately. Also that would have been crippling to the entire crypto and blockchain industry, not something that is necessarily a goal of the SEC.
Next to that, it would bring a lot of traditional companies (mostly in the financial services) into trouble, since they ‘touched’ Ethereum or crypto in some form or way through their services. Not taking into account how many banks have touched a project like Ripple for instance. It’s too late for the SEC and they should have done it at least 2 years ago if they would have wanted to.
The market has reacted as expected and prices shot up a few percent immediately following the news.
So, what do you think about all of this? Let me know in the comments!
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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.