The chairman of the Securities and Exchanges Commission or SEC of the United States, named Jay Clayton, has confirmed an existing analysis stating that Ethereum or ETH, together with some other cryptocurrencies with similar characteristics don’t actually fall within the securities under U.S. law and SEC standards.
The discovery of the SEC staff
Citing the letter written by the chairman of SEC Jay Clayton, it was reported that the SEC staff has discovered that ETH is not even security under the laws of the United States.
Clayton has published his official response to Ted Budd, who is actually the US House Representative. Budd has requested a formal pronouncement from the commission, asking to clarify a few positions in regards to cryptocurrencies.
One clarification which he asked for has been to clear up if the opinions expressed by the directors of the Division of Corporate Finance at the Securities and Exchange Commission, named William Hinman, were personal or if they were also a representation of the company.
Clayton responded to the letter on the 7th of March, noting that he agrees that a definition of a digital asset as security is not static and in that way it can change with time.
Moreover, he stated that a digital asset which starts as security can see its designation change over time if the digital asset is later offered and sold in such ways that it is not going to meet that definition anymore.
Clayton agrees that digital asset transaction cannot represent investment contracts
Without mentioning ETH directly, the chairman of SEC Jay Clayton said that he was asked if he agrees with several statements concerning digital tokens in the speech from June of Director Hinman. Jay Clayton replied with a description of how an asset could actually transition away from being security.
He said that he agrees with the explanation of Director Hinman of how a digital asset transaction cannot longer represent an investment contract if, for instance, buyers would no longer reasonably expect a person or also a group to carry out the essential managerial or entrepreneurial efforts.
Last June, the Yahoo Finance invited Hinman to last years All Markets Summit as the member of the SEC. During this event, he has explained that as of its characteristics, the ETH token has not been classed as security.
He said, when they think about how Ether is operating today, they see a profoundly decentralized network different from centralized actors that characterizes securities offerings. In the current state, they don’t see value regulating it.
Evaluating ICOs, tokens, and cryptocurrencies individually
Despite that, his opinion had a positive effect on the markets the informal nature of the event has also raised several doubts in the community. This gave Budd, and even a group of congressmen an incentive to question the SEC, to get more clarity on the matter, regarding crypto and ICO.
The official communication of Clayton on behalf of the SEC pointed out that each crypto, ICO or token has to be evaluated individually. The general criteria are going to permit civil society to have an approximate understanding of whether the token is security by applying the Howey Test.
According to this test, a transaction is actually an investment contract if it applies to some of these rules:
It is a monetary investment;
There is an expectation of profits from investments;
The money investment is in a joint enterprise;
Profit comes from the promoter’s efforts or also a third party.
At the end of 2018, Clayton also said that ICOs may be useful, but that securities laws must also be followed. In recent times, Hester M. Pierce, who is the commissioner of SEC, argued in favor of self-regulation for the crypto markets when possible.