In what continues to be a fascinating journey, the legislative process is slowly but surely being applied to cryptocurrencies, with the US regulatory authorities extending what appears to be a reasonably well thought out and measured approach to engaging with the emerging crypto-asset space, in particular with regards to the application of securities legislation to decentralised networks.
William Hinman, head of the Division of Corporate Finance for the SEC, last week provided a particular degree of clarity, with his personal assertion that Ether should not be considered a security. This is supposedly due, in his opinion, to the level of decentralisation now established across the Ethereum network, despite the nature of its initial fundraising. In a speech at Yahoo Finance All Markets Summit, Hinman made a series of points surrounding the cryptocurrency world and its relationship to securities legislation, which seemed to indicate many ICO projects would likely pass the ‘Howey Test’ and as such be deemed unregistered securities.[1]
There has been a great deal of speculation within the cryptocurrency community over the past few months regarding the status of a number of crypto-assets in relation to securities regulations. US securities legislation is set at the federal level and relates to everything from the issuance and sale of securities, investment companies and the conduct of “professionals” within the investment landscape. This legislation has been established, through numerous revisions, over the best part of the last century, with such regulation almost entirely absent prior to the Wall Street crash of 1929. The ‘Howey’ test is a key means of determining whether an asset can be considered a security or “investment contract”, and relates to a historic case dating back to 1946, wherein the defendant was responsible for the sale of orange groves to hotel guests, alongside
