Until now, the factors that determine whether a cryptocurrency released in the United States meets the U.S Securities and Exchanges Commission (SEC) definition of security remains an issue for debate among crypto enthusiasts.
In a recent letter sent by SEC Chairman Jay Clayton to U.S Rep Ted Budd, the Chair said that he agreed with an analysis made in 2018 by Division of Corporate Finance Director Bill Hinman's namely — a digital asset that is offered or sold as a security is not static and does not strictly inhere to the instrument.
In his follow-up explanation, Clayton did not say that Ether or any other crypto token is not a security under U.S laws.
Instead, he highlighted that “a digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset is later offered and sold in such a way that it will no longer meet that definition (investment contract).
To meet such a new definition, Clayton stated that the token “purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts.”
While some may attribute the SEC Chair’s explanation as applicable to ETH, there was no clear cut statement from him that it is so.
However, if we were to place his comments in the same context as Division of Corporate Finance Director Bill Hinman's 2018 statement that “current offers and sales of Ether are not securities transactions,” we can conclude that the SEC Chair is also suggesting that Ether transactions are not sales of securities.
In other words, a person transacting the token will likely not be penalized by the SEC for being an unregistered securities dealer.
To illustrate, when the SEC settled charges with EtherDelta’s co-founder Zachary Coburn for selling ERC-20 tokens that the commission classified as “security,” such sanction would likely not have stood if his platform only facilitated Ether transactions.
The SEC’s Chair’s new explanations will likely serve as a parameter for projects in the future; therefore, getting a clear understanding is essential for everyone.
This post is in line with our previous article in which we referenced SEC Chairman Jay Clayton as saying that ETH is not a security. The current report represents our new understanding of the matter while we sincerely apologize for misinterpreting the earlier message.
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