SEC’s Hinman Makes New Comments Suggesting Ether Not A Security

Today, June 14th, top Securities and Exchange Commission (SEC) official William Hinman suggested at the “Yahoo Finance presents All Markets Summit: Crypto” conference that the second largest cryptocurrency by market cap, ether (ETH), is not a security in its current state. NYT’s Nathaniel Popper noted Hinman made further comments that suggest Ripple’s XRP, in contrast, may be a security.

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‘We See a Highly Decentralized Network,’ Official Says

Hinman, Director of the SEC’s Division of Corporation Finance, made a series of remarks at today’s crypto-themed Yahoo Finance All Markets Summit events that suggested the SEC’s leadership did not view ether (ETH) in its current state as a security, though, per Lightning Labs co-founder Elizabeth Stark, Hinman seemingly left open the possibility that the original ETH Initial Coin Offering (ICO) was.

NYT’s resident crypto correspondent Nathaniel Popper broke the comments in a series of tweets earlier this morning:

Hinman, the SEC official, said that the key in determining whether a digital asset is a security is the role that a third party plays in the asset. Do they play a key role in the maintenance of the asset? Do they retain a stake in the digital asset?

— Nathaniel Popper (@nathanielpopper) June 14, 2018

Per Popper, Hinman laid out the securities criteria that the SEC approached any given crypto project with. Hinman went on to say the current Ethereum network is a “highly decentralized network” with no “central third party,” suggesting that he and his SEC colleagues don’t see its fuel, ETH, as presently meeting the aforementioned securities criteria.

“When we look at how Ether today is operating we see a highly decentralized network, and we don’t see a central third party," Hinman said.

— Nathaniel Popper (@nathanielpopper) June 14, 2018

Elizabeth Starks of Lightning Labs chimed in on Popper’s Twitter thread, highlighting Hinman’s rhetorical nuance:

The actual quote appears to have more nuance than that: "current offers and sales." https://t.co/cRYuAxQTO0

— elizabeth stark (@starkness) June 14, 2018

Stark went on to add that the SEC were seemingly leaving room open to go after the original Ethereum ICO as an “unregistered securities offering”:

They're leaving room for the ICO having been an unregistered securities offering (contract for future tokens, etc.)

— elizabeth stark (@starkness) June 14, 2018

Hinman’s comments bring further clarity on the question that has dominated the cryptocurrency space in recent months: what projects may be in violation of U.S. securities laws? Per today’s comments, ETH in its current state may not be, but the possibility remains that the original ETH offering was. How the SEC intends to move forward from such a position remains to be seen.

The markets responded quickly to the news of the comments, with the ether price spiking over $50 USD afterward from a low of $462 this morning:

What About Ripple?

According to Popper, Hinman — both in what he said and didn’t say — seemed to also leave space for the possibility of Ripple’s cryptocurrency XRP being deemed a security.

One big uncertainty hanging over the crypto markets has been whether the 2nd and 3rd largest coins — Ether and XRP — should be categorized as securities. A top SEC official just said they don't think Ether should be, but didn't mention XRP.

— Nathaniel Popper (@nathanielpopper) June 14, 2018

Going further, Popper said Hinman seemed to make a case for an XRP-like situation qualifying as a security:

But Hinman, the SEC official, said that if a token is guided by a third party that holds lots of token, and takes actions to increase the value of that token, it is probably a security. That sounds a lot like a description of Ripple and XRP.

— Nathaniel Popper (@nathanielpopper) June 14, 2018

It’s certainly shy of a full-fledged regulatory opinion, but Popper notably thinks Hinman’s remarks sound “a lot like a description of Ripple and XRP.” If he’s right, XRP hodlers have an increasingly uncertain horizon ahead, as will other hodlers of altcoins that fit the same bill. In the very least, bitcoin and apparently ether have now been cleared.

What’s your take? Do you think XRP is a security? Let us know, yay or nay, in the comments below. 


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