William Hinman, head of the Corporation Finance division at the US Securities and Exchange Commission (SEC), has stated that he doesn’t believe that Bitcoin and Ether should be considered securities.
In his speech at the Yahoo! All Markets Summit: Crypto conference in San Francisco on June 14, Hinman revealed his opinion that Bitcoin (BTC) and Ether (ETH) don’t constitute securties offerings, saying that applying federal securities laws to Bitcoin “would seem to add little value” and that “sales of Ether are not securities transactions.”
Part of HInman’s determination for whether a cryptocurrency should be considered a security lay in the presence or absence of a central authority. According to Hinman, the presence of “a central third party whose efforts are a key determining factor in the enterprise” may mean that the assets constitute a security offering, especially when the central authority “drives the expectation of a return.”
However, Hinman also cautioned that "the analysis of whether something is a security is not static and does not strictly inhere [sic] to the instrument," including so-called utility tokens. “Simply labeling a digital asset a “utility token” does not turn the asset into something that is not a security,” he added.
Regarding initial coin offerings (ICOs), Hinman said that “overwhelmingly, promoters tout their ability to create an innovative application of blockchain” while “the business model and very viability of the application is still uncertain,” so investors have “no choice but to rely on the efforts of the promoter to build the network and make the enterprise a success.”
“At that stage, the purchase of a token looks a lot like a bet on the success of the enterprise and not the purchase of something used to exchange for goods or services on the network,” Hinman added, which would likely mean that the ICO should be classified as a security.
On June 13 at a townhall meeting in Atlanta, SEC Chairman Jay Clayton reaffirmed his view that most ICOs are securities, saying that “much of what I have seen in the ICO or token or ICO space, is a security offering.”