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Big day in the cryptocurrency markets yesterday.
William Hinman, the Director of Corporate Finance at the SEC, stated that Ethereum wasn’t a security during a talk in San Francisco. This led to an explosion of social media excitement and plenty of Twitter thought leaders trying to opine on what this would mean for other cryptocurrencies.
Hinman’s prepared statement included this quote: “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.”
There are a few key points worth calling out:
This is not an official SEC ruling, but rather the statement of an influential person at the organization. It is important to pay attention to the statement but the official SEC ruling will be the most important one to watch.
Regardless of what the SEC officially rules, nothing will be set in stone until the ruling is tried in a court of law. The legal precedent for securities law is always important, but even more so in the cryptocurrency market since there are many new nuances (decentralization, non-profit foundations, utility usage, etc).
The SEC has explicitly stated that an asset can evolve from a security (at issuance) to utility (in the steady state). There are currently no laws or legal precedent for this scenario - expect this to be a big area of focus for lawyers & regulators over the next few years.
The prepared statement yesterday highlighted that Ethereum may or may not have been sold as an unregistered security in the past - and the SEC does not appear to be interested in making a ruling on it. This leaves the door open for enforcement on other projects that sold unregistered securities during their issuance process.
The cryptocurrency regulatory saga is far from over. Yesterday was a positive step in the right direction but expect this to continue playing out over the next few years. I personally anticipate we will see a Supreme Court hearing at some point. Should be fun to watch.
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