SEC Corp Fin Director Concludes That Bitcoin And Ether Are Not Securities

SEC Division of Corporation Finance Director William Hinman asserted that Bitcoin and Ether are not "securities" under U.S. law. In remarks at the "Yahoo Finance All Markets Summit: Crypto" in San Francisco, Mr. Hinman explained that the circumstances surrounding a digital asset, including the manner in which it is sold, determine whether it is considered a security.

Mr. Hinman based his reasoning on the "investment contract" test set forth in SEC v. Howey, which states that a security is created when there is an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. According to Mr. Hinman, a purchaser of a digital token relies on the efforts of the promoter or centralized third party to make the token a success, while the investor is passive. The purchase of an investment contract is a bet on the success of the issuer, he said, rather than the purchase of a medium for exchanging goods or services.