SEC Provides Framework To Determine If Digital Assets Are Securities

In Short

The Situation: The Director of the U.S. Securities and Exchange Commission's Division of Corporate Finance, William Hinman, has weighed in on when digital assets will be characterized as securities.

The Result: In reinforcing the core principles set forth in the SEC's recent ICO enforcement actions, Mr. Hinman described important nuances involved in the application of the landmark Howey test, highlighted that the application of the Howey test may yield a different result in light of changing circumstances over time, and affirmed that current sales of Bitcoin and Ether are not securities transactions.

Looking Ahead: While market participants seeking to determine whether transactions in a particular digital asset involve the sale of a security continue to face a challenging facts-and-circumstances based analysis, Mr. Hinman's remarks provide important insights into certain of the factors that the SEC views as critical to the analysis.