SEC Chairman Declares Bitcoin Isn't a Security, While Most ICOs Are

During a dialogue with CNBC, SEC's Jay Clayton addressed a pivotal issue: the status of Bitcoin and ICOs within securities regulations. He was quite candid in asserting that Bitcoin operates outside the realm of securities. Nevertheless, he hinted that a substantial array of ICOs, particularly those aimed at driving startup funding or offering a stake in a business, likely qualify as securities.

What is a Security?

Let's break down what typically constitutes a security in financial parlance. According to Investopedia A security is generally understood as a tradeable, negotiable financial instrument holding monetary worth. It signifies ownership interest in a publicly-held company via stocks, indebtedness toward a government or corporate entity through bonds, or ownership entitlements represented by an option.

To delve deeper into the intersection of cryptocurrencies and securities regulations, look here. our article on the subject here

SEC: Bitcoin Not a Security

Knowing the core characteristics of a security clarifies why traditional currencies such as the US dollar or the Euro aren't in this category. They don't imply company ownership or stand as forms of debt.

If the SEC were to categorize Bitcoin as a security, it would create substantial ripples across global commerce as we know it. Bitcoin isn't aligned with any single corporate entity, and it doesn’t denote ownership or obligations towards others.

Classifying Bitcoin as a security by the SEC would imply that even collectible toys like Beanie Babies could be tagged as such, an undeniably absurd idea.

However, Clayton wasn't as lenient when critiquing the burgeoning ICO market's approach in recent times. So, what exactly was his standpoint?

SEC Versus ICOs

Upon CNBC's inquiry about whether Bitcoin or similar cryptocurrencies are seen as securities by the SEC, Clayton replied about Bitcoin, likening it to a revolutionary swap for state-controlled tender like dollars and Euros, thus negating it as a security.

Clarifying further, Clayton noted that investments where money is pooled into ventures or businesses with promises of returns may indeed be subject to securities regulations.

CNBC's Pisani asked if Clayton sees the majority of ICOs as securities, to which he affirmed.

Pisani further inquired whether a definitive announcement from the SEC was forthcoming. Clayton humorously noted that his previous statement was pretty clear, stating that securities are already strictly regulated.

Clayton stressed that the SEC is not inherently opposed to ICOs or token usage but recommended prospective facilitators engage directly with the SEC and adhere to formal procedures.

SEC Rules Have “No Need to Change”

When pressed about assets like Ether and Ripple's XRP, Clayton refrained from remarks, encouraging a focus on whether the process involved expects financial backing for venture returns.

Pisani questioned if the securities definitions might need an update. Clayton confidently affirmed existing rules suffice, bolstered by decades of regulatory practice.

Discussion turned towards prerequisites for a Bitcoin-based financial product like an ETF to gain approval.

Clayton pointed out that SEC consistently outlines the requirements for different asset classes, emphasizing reliable pricing and asset credibility, with transparency being key in their communications.

Numerous ICOs Might Face SEC Scrutiny

Chairman Clayton's commentary suggests a considerable number of cryptocurrencies with ICO roots could attract unwanted regulatory attention.

While specific assets or entities aren't overtly discussed, numerous token sales have indeed channeled their raised capital towards company establishments.

An intriguing number of these ICO ventures are not US-based. Specifically, places like Singapore and the EU are hotspots, leaving the impact of US SEC regulations on foreign enterprises in a bit of a gray area.

Fortunately, Clayton’s messaged reassurance that decidedly currency-focused projects such as Bitcoin, including possible parallels like Dash or Litecoin, might remain untouched by the SEC was a pivotal highlight.