Nation & World

Bitcoin, Ether shouldn't be regulated like stocks and bonds: SEC official

Reuters

“As with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value,” says William Hinman, an SEC official.
Reuters “As with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value,” says William Hinman, an SEC official.

William Hinman says that’s because they are not developed by a single entity

Washington Post

Two of the world’s biggest virtual currencies need not be regulated like stocks and bonds, a top official at the Securities and Exchange Commission said Thursday.

That put to rest months of uncertainty about how the financial regulator views bitcoin and ether, the cryptocurrency behind Ethereum.

Speaking at an industry conference in San Francisco, William Hinman, the SEC’s director of corporate finance, said the two top cryptocurrencies don’t meet the criteria for regulation that the agency typically applies to traditional securities.

“Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said.

Hinman’s remarks suggest that, unlike companies, which are required to educate stock investors about the health of their businesses, the developers behind bitcoin and ether face no such obligations.

The basis for this conclusion, Hinman said, lies in the fact that bitcoin and ether are developed diffusely, by many unaffiliated people, rather than by a single, centralized entity such as a corporation.

“As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult and less meaningful,” Hinman said.

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“As with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”

The speech was seen as a victory by cryptocurrency advocates who have argued that applying securities regulation to a novel technology could inhibit its growth.

Minutes after Hinman began speaking, the price of bitcoin spiked by nearly three percent, according to Coinmarketcap.com. The price of ether surged more than nine percent.

“We are thrilled to see (the SEC) take a strong pro-innovation approach to this nascent technology,” said Jerry Brito, executive director of the Coin Center, a Washington, D.C., think tank and lobbying organization dedicated to cryptocurrencies.

The regulatory status of cryptocurrencies has come into question as numerous cryptocurrency projects have sought funding with so-called initial coin offerings, an approach some have compared to initial public offerings of corporate stock.

Whether investors were receiving adequate disclosures — or perhaps being lured into scams — became a major focus of regulators such as the SEC in recent months.

In May, state securities regulators announced a nationwide crackdown on investment schemes accused of misleading or defrauding consumers. Dozens of probes into initial coin offerings — ICOs — and other get-rich-quick promises led to cease-and-desist letters and warnings from top SEC officials of the potential hazards of ICOs prompted analysts to wonder whether a wider reckoning for cryptocurrency was coming.

In many cases, but not all, companies that handle cryptocurrencies comply with tax, banking and other regulations that aim to protect consumers. Securities laws aim to add an additional layer of safety beyond ordinary consumer protection law, analysts say.

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Although bitcoin and ether do not appear to warrant securities regulation today, Hinman said, that could change in the future.

And the SEC’s analysis on Thursday did not address other cryptocurrencies that the agency may decide ought to be regulated as securities.

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