Ether Is Not A Security, SEC Declares
The US Securities and Exchange Commission (SEC) has officially announced that Ether (ETH) – the second largest cryptocurrency by market cap – is not a security.
The announcement was made today at Yahoo Finance’s All Market Summit: Crypto in San Francisco. At the summit, SEC Director of Corporate Finance William Hinman said that the commission would neither classify Bitcoin nor Ether as securities.
Ether operates as a crypto “fuel” for the Ethereum blockchain and is used as the underlying asset to drive computations on the network. However, Ether has been in limbo over the past few months as US regulators had been hinting at declaring the asset a security.
In terms of crypto assets, something may be deemed a security if it represents shares of ownership, is a mechanism for profit/loss sharing, or gives the holder a right to claim equity interest or repayment of purchases.
Hinman clarified that, if a cryptocurrency network is sufficiently decentralized and purchasers no longer have expectation of managerial stewardship from a third party, a coin is not a security. However, Hinman stated that labeling an investment opportunity as a “token” or “coin” does not exempt the asset from being considered a security.
It was long debated if Ether, although clearly a commodity today, should be considered a security due to token functionality when it was issued in 2016. However, it is likely that lax regulation forced regulators hands in not declaring Ether a security, even if it had been in its infancy. Although these statements from the SEC have clarified that Bitcoin and Ether are not securities, there is still regulatory uncertainty over other major cryptocurrencies as well as Initial Coin Offerings (ICOs), which have raised roughly $10 billion in 2018 thus far.