SEC Clarifies Bitcoin and Ethereum Are Not Securities
SEC official William Hinman clarifies that Bitcoin and Ethereum are not considered securities, providing crucial regulatory clarity for the cryptocurrency industry.
On March 7, 2018, Securities and Exchange Commission (SEC) official William Hinman publicly stated that Bitcoin and Ethereum should not be considered securities under U.S. law, providing crucial regulatory clarity that had been desperately sought by the cryptocurrency industry. Hinman, the SEC's Director of Corporation Finance, explained that these cryptocurrencies were sufficiently decentralized that purchasers were not relying on the efforts of a specific third party to generate returns—a key element of the Howey Test used to determine security status.
The SEC's position that Bitcoin and Ethereum were not securities represented a major victory for the cryptocurrency industry and removed significant regulatory uncertainty that had hung over the market. If Bitcoin had been deemed a security, it would have subjected Bitcoin exchanges to securities regulations, required Bitcoin transactions to comply with securities laws, and potentially made much existing Bitcoin trading activity retroactively illegal.
The clarification meant that Bitcoin could be traded on exchanges without those platforms needing to register as securities exchanges, individuals could buy and sell Bitcoin without securities law restrictions, and businesses could build Bitcoin infrastructure without navigating complex securities compliance. Hinman's statement made clear that the SEC's security determination depended on decentralization: Bitcoin qualified as a non-security because no central party controlled it, no identifiable promoter was marketing it as an investment, and its value derived from network effects and utility rather than any company's efforts.
This framework also implied that many ICO tokens and centrally-controlled cryptocurrencies likely were securities, subjecting them to SEC jurisdiction. For Bitcoin, the SEC's clarification provided a crucial foundation for continued development in the United States, the world's largest financial market.The regulatory clarity enabled institutional investors to proceed with confidence, allowed compliant businesses to operate without security law concerns, and established Bitcoin's unique status as a true decentralized cryptocurrency distinct from the thousands of token projects.