The U.S. Security and Exchange Commission (SEC) has ruled that bitcoin is neither a security or investment vehicle and it cannot be regulated in the same way as stocks and bonds.
The head of SEC’s Division of Corporation Finance William Hinman, said a number of major cryptocurrencies including bitcoin and ether are completely decentralized and cannot come under the regulatory control of the SEC and other relevant securities laws.
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” Hinman said in a speech at the Yahoo All Markets Summit: Crypto conference in San Francisco.
Hinman explained that bitcoin does not fit into the definition of a security because it is decentralized. In other words, there is no central control, no central repository of information, no central management and perhaps more crucially, no central point of failure. That feature according to Hinman also means that ethereum the second largest cryptocurrency by market capitalization is not a security, because it is decentralized.
“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, and, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”
Hinman did not clarify the status of other cryptocurrencies including Ripple and Litecoin but he said that other cryptocurrencies may become “sufficiently decentralized” in the future, to the point where “regulating the tokens or coins that function on them as securities may not be required.”
According to the Commission, the primary consideration in determining whether a cryptocurrency or ICO is a security was the expectation of a return by a third party, specifically whether there was a person or group that sponsored the creation and sale of the asset, and who played a significant role in its development and maintenance. For purchasers of the asset, the key is whether they are seeking a return on the investment.
In response to the SEC ruling, the market responded to the news as the price of bitcoin and ether surged to its highest in 4 days. On Thursday, the price of bitcoin gained nearly $400 and was trading above the $6,500 mark.
In recent months the SEC has launched a clamp down on what it suspected were fraudulent ICO, sparking fears that bitcoin and the entire cryptocurrency market would be hit by government regulations.