SEC Chairman Jay Clayton Clarifies that “Ethereum (and Cryptos Like It) Are Not Securities”

Whether to classify the cryptocurrencies such as Ethereum, Bitcoin etc. as a security token or not has become the hottest topic to debate in the world of blockchain and cryptos. A recent answer letter from the U.S. Securities and Exchanges Commission (SEC) Chairman Jay Clayton to the Washington-based crypto-focused research and advocacy center Coin Center and Congressman Ted Budd, confirms his position on the classification of digital tokens.

SEC Chairman Jay Clayton corroborated that the “[c]ommission staff analysis that found Ethereum (and cryptos like it) are not securities.” He further added that the SEC analysis staff has found that Ether cannot be considered as a security under the U.S Law.

Last year in July during the Yahoo All Markets Summit, Director of the Division of Corporate Finance William Hinman shared his opinion that cryptocurrencies like Bitcoin and Ethereum are not securities. To be exact, Hinman explained that if the platform on which the digital asset is operating has a rock-solid decentralized structure then that particular cryptocurrency cannot be considered as a security. According to him, the blockchain network of Ethereum is sufficiently decentralized that its sales can’t be considered as securities transactions.

In order to find out whether Hinman’s opinion represents the Commission’s position on crypto or it’s just the opinion of one SEC staff member, Coin Center together with Congressman Ted Budd send a letter co-signed by several colleagues to Chairman Clayton asking to clarify if the Commission is in agreement with Hinman’s approach of classifying such crypto tokens.

In his answer letter Jay Clayton wrote:

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

Clayton further stated that he might agree “with certain statements concerning digital tokens in Director Hinman’s June 2018 speech” but he never directly mentioned that Ether is no longer a security. He went on further explaining that a digital asset’s definition as security is “not static” and thus it can easily move away from being a security. Lastly, it doesn’t seem like the confirmation from Clayton is the statement that the crypto market has been waiting for.

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