SEC issues guidance on cryptocurrencies offered as securities

By Roger Baird on Thursday 4 April 2019

Savings and Investment

The market has waited six months for this paper from the US regulator.

The US Securities and Exchange Commission (SEC) has issued long-awaited guidelines on whether cryptocurrencies qualify as a security under federal law and need to be registered with the regulator.

The guidance comes from SEC’s FinHub, established in 2018 to address issues related to digital currencies such as Bitcoin and other financial innovations.

It said: “As financial technologies, methods of capital formation, and market structures continue to evolve, market participants should be aware that they may be conducting activities that fall within our jurisdiction.”

The SEC said it would consider whether a digital asset has any characteristics of an “investment contract.”

It added an investment contract “exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” the regulator said in a 13-page paper called Framework of Investment Contract Analysis of Digital Assets published earlier this week.

SEC’s director of corporation finance William Hinman said last November it was developing new guidance for crypto tokens and the market has hotly anticipated this document for almost six months.

The SEC listed the activities its paper covered:


  • offering, selling, or distributing

  • marketing or promoting

  • buying, selling, or trading

  • facilitating exchanges

  • holding or storing

  • offering financial services such as management or advice

  • other professional services

But the regulator made it clear that it was still developing its approach to digital assets and initial coin offerings (ICO), which exploded in 2017 raising $6bn for various projects and firms.

It said: “The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.”

In recent years the SEC has fined a number of firms and individuals for inappropriate uses of cryptocurrency, this paper is the regulator’s clearest guidance yet about how these digital assets should be used.   



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