The chairman of the US Securities and Exchange Commission, Jay Clayton, recently reaffirmed his position on Ethereum and other similar cryptocurrencies, clarifying that they are not securities. This subject has been a controversial one in the crypto space, but Clayton confirmed that those types of digital currencies are not subject to the country’s securities laws.
Some cryptos are not securities
Coincenter, a cryptocurrency and blockchain legislative advocacy group, published a report on March 12 regarding correspondence between Jay Clayton and Ted Budd, a local representative. The SEC chairman revealed that analysis by SEC staff showed that Ethereum and similar digital currencies are not affected by the securities laws in the United States.
The statement by Clayton implies that he agrees with William Hinman, the SEC’s head of corporate finance division. In July of last year, Hinman pointed out that cryptocurrencies such as Bitcoin and Ethereum are not securities. During the Yahoo All Markets Summit last year, he stated that cryptocurrencies that have a decentralized network do not function as securities and are therefore not subject to securities guidelines.
A few months ago, Coincenter and Ted Budd submitted a letter to the SEC chairman asking him if he shares a similar opinion with Hinman regarding Ethereum and Bitcoin. Clayton responded affirmatively, stating that the explanation provided by Hinman was correct and that such cryptos are not currently viewed as securities by the SEC.
The SEC chairman further stated that under the Howey framework, when investors no longer expect the development team to carry out their regular managerial or entrepreneurial efforts, the digital asset used ceases to be an investment contract.
In his response, the SEC chairman did not mention the cryptocurrencies that met this criteria, but Coincenter suggested that the letter was a confirmation that Ethereum and similar cryptos are not viewed as securities by the commission. On his part, the founder of Coincenter, Jerry Brito thanked Budd for the role he played in attaining the letter and establishing regulatory clarity for digital currencies.
Clayton previously made a similar assertion
This latest comment is not the first time that Jay Clayton discussed the issue of cryptocurrencies and their classification as securities. In June 2018, the SEC chairman, during an interview with CNBC, revealed that Bitcoin is not a security.
Back then, he stated the following:
“Replace the dollar, the yen, the euro with Bitcoin — That type of currency is not a security. Where I give you my money and you go off and make a venture, and in return for me giving you my money, you say, ‘You know what, I’m going to give you a return.’ That is a security, and we regulate that. We monitor the offering of that security, and we control the trading of that security.”
At CoinDesk’s Consensus Invest event last year, Clayton compared cryptocurrencies to tickets for a new movie. He suggested that some investors would be promised tickets for a film and this qualifies them as securities. However, if the team decides to sell the tickets to everyone interested in the play, then it is no longer a security since it has become decentralized.
Despite his positive outlook on cryptocurrencies, Clayton considers ICOs to be securities. In December 2018, the SEC chairman stated that ICOs were a new way of raising funds by entrepreneurs and that they are excellent forms of value as long as they abide by securities guidelines. The unique technical nature of ICOs does not alter the fundamentals of securities, and they have to follow the instructions provided while offering their services.
While Bitcoin and Ethereum are not considered as securities, both Hinman and Clayton seem to think otherwise of Ripple’s XRP coin. Ripple is currently facing a class-action lawsuit, with the XRP coin allegedly regarded as a security by the plaintiff. We’ll track this story for you as well and share updates as they become available.