The Most Important Bitcoin News of the Week: SEC Statement

Today when reading the morning headlines, I noticed the following three articles, all expressing skepticism about the current state of bitcoin growth - all from sources that have been typically fairly 'pro' bitcoin:

Wired: BitCoin is Soaring - Here is Why It's Not Ready for the Big Time 

Ars Technica: I used to be a bitcoin bull—here’s why that changed

Preethi Kasireddy: Fundamental challenges with public blockchains

These all discuss a number of technical challenges to BitCoin and are all very well written and worth the read. However, not one of them mentions the single biggest thing to happen in BitCoin news this quarter, which is the statement from SEC Chairman Jay Clayton released as of this Monday, December 11, 2017, entitled:

Statement on Cryptocurrencies and Initial Coin Offerings

A few choice tidbits:

  • Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law. On this and other points where the application of expertise and judgment is expected, I believe that gatekeepers and others, including securities lawyers, accountants and consultants, need to focus on their responsibilities.

(Emphasis in original.)
  • On cryptocurrencies, I want to emphasize two points. First, while there are cryptocurrencies that do not appear to be securities, simply calling something a “currency” or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either (1) be able to demonstrate that the currency or product is not a security or (2) comply with applicable registration and other requirements under our securities laws. Second, brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations.[7] As I have stated previously, these market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.


(Emphasis in original.) And:


  • By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.
(Emphasis mine.)

Combine that with the fact that the SEC was involved in the shutdown of two (2) ICOs in the past two (2) weeks†, and I'm happy to call it: BitCoin, in the substantial majority of current examples, is almost certainly a security and subject to oversight by the SEC and very likely subject to registration requirements.

To paraphrase the commissioner of the SEC: the majority of current cryptocoin offerings are likely unregistered offerings of securities. This could mean millions of dollars of fines, being shut down by the SEC and, for particularly egregious offenders, possibly worse. So yes, the technical considerations are still in play, but why are none of these authors addressing the fact that an unregistered bitcoin offering is may well be a securities violation? (Hat tip to Preethi Kasireddy, who wrote the day before the commissioner's statement.) That seems to me to be the 800lb gorilla riding the furious elephant in the room.

Also, a parting note for my fellow attorneys: the SEC Chairman admonished the profession, directly, to 'focus on their responsibilities.' As a result, speaking on my own behalf - I'd love to represent you for your startup's ICO - provided that your plan involves a registration statement and a NY DFS BitLicense. If you, as an attorney, are planning on helping your startup clients' engage in ICOs and that plan does not involve either (a) a no-action letter from the SEC or (b) a registration statement, well, bon chance!



† 1. Company Halts ICO After SEC Raises Registration Concerns, 2. SEC Emergency Action Halts ICO Scam

Final note and disclaimer: I'm not your attorney, this is my personal view and not the view of my firm and if you have any questions about any of the above, or are considering engaging in an ICO, either as issuer or purchaser, please consult with an attorney.

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