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Cryptocurrencies Are Not Securities, Just Blockchain Equity

by Pralines and Cream 2 months ago in cryptocurrency

Here's why...👇

Cryptocurrencies Are Not Securities, Just Blockchain Equity
Photo by Jeremy Bezanger on Unsplash

Whether you trade or invest in cryptocurrencies or blockchain equity, you might be interested to know how securities regulators view cryptocurrencies. Well, their position isn’t that clear-cut. The SEC maintains that cryptocurrencies like Bitcoin are not yet securities and on the flipside, has taken action against unregistered broker-dealers offering cryptocurrency investments and derivatives. This leads us to assume that while they might not currently be securities, they could become securities at some point in the future.

The SEC announcement that cryptocurrencies are not securities is a good thing but it leaves a lot of room for interpretation.

The SEC announcement that cryptocurrencies are not securities is a good thing but it leaves a lot of room for interpretation. Here’s how blockchain equity might be the best way to resolve those issues.

The definition of what is and isn’t a security can be very vague in the cryptocurrency space as I’ve discussed before. While it does seem that most cryptocurrencies are not securities, there are some who would argue otherwise.

In an announcement last week, the SEC announced that Bitcoin and Ethereum are not securities. This announcement was a bit surprising since many thought that they should be regulated as securities since they are decentralized and don’t have any central authority controlling them at present.

The statement from the SEC didn’t really explain their reasoning behind the decision but it did say that they would continue to monitor developments in the cryptocurrency space to see if any new tokens should be considered securities.

While this announcement was welcomed by most in the cryptocurrency space, there is still a lot of confusion about what it means for other cryptocurrencies in particular and what it means for blockchain equity in general.

This positions blockchain technology at the forefront of innovation in the digital asset industry.

In an official statement by the SEC, cryptocurrencies are not securities but blockchain equity is.

The SEC has been investigating the cryptocurrency market and its regulation since the beginning of 2018. A recent report by the SEC has stated that cryptocurrencies and digital tokens are not securities in their current form. However, blockchain equity is.

This positions blockchain technology at the forefront of innovation in the digital asset industry. It also means that blockchain equity will be under heavy scrutiny moving forward.

The SEC states that if something is a security, it is subject to federal securities laws and regulations. Therefore, any initial coin offering (ICO) that offers a security is subject to federal securities laws and regulations. The SEC warns investors against ICOs because they cannot guarantee security or protection to investors. The SEC also stated that there have been several cases of fraud related to ICOs in recent months.

The current state of cryptocurrencies and ICOs does not mean that all blockchain technology stocks are not securities, however. In fact, according to a report by Fortune, there are currently more than 100 different stocks associated with blockchain technology available on the market today.

In some cases, they could actually be securities.

The world of cryptocurrency is already confusing for many novice investors. But a recent report claims that the Securities and Exchange Commission (SEC) is considering classifying some cryptocurrencies as securities. This could lead to confusion among investors, who may not understand why something called “cryptocurrency” may be regulated by the SEC.

The confusion comes from the fact that the term “cryptocurrency” encompasses two different things — currency and equity. Cryptocurrencies like bitcoin are a form of currency, while initial coin offerings (ICOs) are more like equity crowdfunding campaigns.

The SEC’s statement follows a recent trend of fraud charges against ICOs that allegedly misled investors. The SEC has said it intends to pursue ICOs that sell themselves as investment contracts but fail to meet the requirements for securities offerings under federal law.

In general, an ICO would be a security only if it meets the definition of an “investment contract.” Under current law, an investment contract means an investment of money in a common enterprise with the expectation of profit from another party’s efforts. Not all ICOs meet this definition; some are used to fund startups and others are used to develop new cryptocurrencies for use by their intended audience.

The SEC announcement that cryptocurrencies are not securities is a good thing but it leaves a lot of room for interpretation.

The U.S. Securities and Exchange Commission announced that cryptocurrencies are not securities. This is a good thing but it leaves a lot of room for interpretation. For example, when does a cryptocurrency become an asset? What about tokens that derive their value from the network? What about Ether?

For those who don’t know, the SEC has been debating whether or not cryptocurrencies should be classified as securities. The SEC defines a security as “an investment contract.” The definition of an investment contract is broad and includes “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”

If you read the Howey Test from 1946, it says that an investment contract can be found if there is: (1) an investment; (2) common enterprise; (3) reasonable expectation of profits; and (4) profits derived from the work of others.

The SEC has been saying for some time that Bitcoin is not a security because it is decentralized. But what about other cryptocurrencies? While most agree that Bitcoin is not a security, some believe Ethereum is. At least one ICO was issued under Regulation D, which means that it filed with the SEC and believes it was issued as a security.

A cryptocurrency that pays dividends is also quite likely to be deemed a security.

The SEC has been struggling with the question of whether cryptocurrencies are securities. The traditional definition of a security is a share of stock, but tokens can qualify as securities in other ways. The Howey test has been used as a standard for more than 70 years — and it’s failed to provide clear guidance on the issue of cryptocurrencies.

The SEC has made it clear that some tokens sold through initial coin offerings (ICOs) are securities. But it hasn’t yet provided definitive guidance on the status of cryptocurrencies that function more like currencies.

There are likely to be some cryptocurrencies that operate like currencies, but those that pay dividends or represent equity in a company are likely to be deemed securities.

It is also important to distinguish between tokens and coins, because the distinction may determine whether something is a security or not. Coins do not require users to have accounts on an exchange, whereas tokens do.

The SEC has recently announced that Bitcoin and Ethereum are not securities — but other cryptocurrencies may well be.

One measure would be if there’s a central figure or organization responsible for the maintenance and management of the coin.

New York Law School Professor Houman Shadab, a member of the New York State Bar Association’s Committee on Cryptocurrency and Blockchain Technology, and of the American Bar Association’s Section of Business Law Committee on Virtual Currencies, shared his thoughts with Bitcoin Magazine on the recent SEC announcement.

Less than two weeks ago, William Hinman, director of the SEC’s Division of Corporation Finance, announced at the Yahoo Finance All Markets Summit that Ethereum was not a security. His statement caused great excitement in the cryptocurrency community as it was widely interpreted to mean that cryptocurrencies are not securities. But if you read his actual words, he said no more than that ether is not a security. He did not say whether other cryptocurrencies are securities or why ether is not one. He did offer some guidance regarding when a cryptocurrency might be considered a security:

Under Howey [a 1946 U.S. Supreme Court case], an investment contract for purposes of our securities laws refers to a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.

To conclude

The SEC ruling, though not a surprise to most observers, is troubling to crypto founders and ICO investors. The SEC is apparently not just targeting the obvious scams and applications that are clearly securities but also those that simply mimic traditional securities transactional features. This may hit home even harder as many ICOs involve revenue-sharing/reward systems similar to revenue-sharing models typically reserved for equity issuances.


About the author

Pralines and Cream

Hi there,

I'm Pierre, a freelance writer, serial blogger and speaker who enjoys enlightening others about unknown and little known facts.

I'm also head of Praline and Cream Media, a publishing company that shares sweet knowledge to the world!

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