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SEC Chairman Says Bitcoin Is Not a Security
SEC Chairman Jay Clayton clarified that bitcoin is not a security. “Cryptocurrencies are replacements for sovereign currencies…[they] replace the yen, the dollar, the euro with bitcoin. This type of currency is not a security,” he said in an interview with CNBC. Their assessment is important because the debate around cryptocurrency regulation often focuses on their status as securities. (See also: Are there any SEC guidelines on ICOs?)
But Clayton avoided commenting on the case of ethereum and ripplethe second and third most valuable cryptocurrencies, being classified as securities. At a conference in April, former CFTC Chairman Gary Gensler sharply criticized XRP and said there was “a strong case” for classifying it as a security. (See also: ICO Tokens Are Securities: Former CFTC Chairman).
Bitcoin, which has never sought public funds to develop its technology, does not do not pass O Howey test used by the SEC to rate securities.
No Extension for Ethereum Tokens
Bitcoin may be free, but Ethereum tokens, which have been embroiled in a fierce debate over their status, have not received similar relief. Critics accuse these tokens of masquerading as utility tokens when they are actually securities.
In his interview with CNBC, Clayton made it clear that his agency still intended to regulate tokens. “A token, a digital asset where I give you my money…[in exchange for] providing a return… that’s a security and we regulate that. We regulate the offering and trading of that security,” he said. Clayton’s statement is a reiteration of the agency’s repressive actions in recent times. (See also: SEC warns investors about fraudulent ICOs).
Clayton has been a vocal advocate for regulatory action against fraudulent tokens. Based on his stance during the interview, it seems he’s not ready to back down any time soon. “We’re not going to do any violence to the traditional definition of security that has worked for a long time,” he said. “We’ve been doing this for a long time, there’s no need to change the definition.” According to him, the U.S. securities market, which is “the envy of the world,” was built on the same rules. The reaction to his latest interview has not been positive.
Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin and litecoin.