Strong Indications from U.S. Officials that Ethereum Is Not a Security

Promising news for crypto enthusiasts: senior U.S. officials have indicated that Ether (ETH) – the second-largest cryptocurrency – is not a security. Yet, it is important to note that these kinds of statement are not binding nor final; they are merely hints that may suggest towards which direction the official U.S. policy regarding cryptocurrencies is leaning.

On June 14th at the Yahoo Finance All Markets Summit, the SEC’s Director of the Division of Corporation Finance, William Hinman, released several interesting remarks with respect to crypto and more specifically, to the second most valuable cryptocurrency Ethereum:

“[B]ased 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. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

This statement is extremely significant and meaningful when considering the high-ranking position of Hinman within the U.S. Securities and Exchange Commission. However, in spite of the reassuring comments, Hinman went on to clarify that this current stance “is not static and does not strictly inhere to the instrument” – which means that everything is still very fluid and nothing is carved in stone.

Hinman’s comments did receive some reinforcement from U.S. Congressman Tom Emmer who stated that “Director Hinman’s comments are encouraging, specifically his suggestion that the decentralized and useful nature of certain technologies may provide a means toward regulatory certainty, even for assets which once may have been considered a security.”

Another affirmation of support in less regulatory oversight of cryptocurrencies from a senior U.S. official came recently from the Director of the Office of Management and Budget (OMB) and Acting Director of the Consumer Financial Protection Bureau (CFPB), Mick Mulvaney. Mulvaney, who historically has been crypto friendly, expressed his willingness to see less regulations that might scare away investors and innovators in the crypto market: “We knew at an early point in Bitcoin that as with any developing financial technology we needed to find that sweet spot.” This “sweet spot” is of course the right balance between prudent regulations that protect investors on the one hand, and untethering freedom to allow further technological development on the other.

So, sure, it appears that currently there is an unofficial predisposition to mitigating regulatory policy with regard to cryptocurrency, as publicly expressed by several eminent U.S. officials, but don’t crack open a bottle of champagne quite yet. The crypto market is very volatile, and it’s safe to assume that establishing a formal legislative policy will be just as fickle.