Expect Focus Life Insurance, September 2018

SEC: Ether and Bitcoin Are Not Securities

Blockchain and Digital Currency   |   Insurance   |   Financial Services Regulatory   |   Life, Annuity, and Retirement Solutions   |   Securities & Investment Companies   |   Securities Transactions and Compliance   |   Technology   |   October 1, 2018
Cryptocurrency investors were concerned following the SEC’s July 2017 investigative report on digital token sales by a virtual organization known as “The DAO.” The report warned that so-called initial coin offerings and other distributed ledger-based fundraisings were likely securities offerings. But they have since received a more reassuring message from SEC Division of Corporation Finance Director William Hinman.

On June 14, before a Silicon Valley audience, Hinman indicated that current offers and sales of cryptocurrencies Ether and Bitcoin are not securities transactions. He applied the Supreme Court’s “investment contract” test, under which a security exists if there is an investment of money in a common enterprise with an expectation of profit derived from others’ efforts. In Hinman’s view, a digital asset transaction may no longer represent a security offering when the efforts of others “are no longer a key factor for determining the enterprise’s success,” which can occur when the network on which the digital asset functions becomes “sufficiently decentralized.”

Speaking of Ether, for example, Hinman noted:

Putting aside the fundraising that accompanied the creation of Ether, 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.

SEC Chairman Clayton has publicly expressed similar views about bitcoin.

However, Hinman was careful to explain that “investment contracts can be made out of virtually any asset (including virtual assets), provided the investor is reasonably expecting profits from the promoter’s efforts.” If a promoter were to place bitcoin in a fund and sell interests, for instance, that would create a new security. So, while Hinman’s and Clayton’s unofficial statements regarding Ether and Bitcoin may reassure holders of those cryptocurrencies, determining whether a particular digital asset transaction constitutes a security offering will in most cases still require a careful assessment of the particular facts and circumstances. 


©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.