Bitcoin and ethereum aren't securities, Belgium says

belgian flag skyscrapers business district brussels — The Financial Services and Markets Authority of Belgium released a document on Thursday that stated cryptocurrencies without an issuer are not securities. Photo: PA/Alamy

Financial regulators in Belgium have declared bitcoin (BTC-USD) and ethereum (ETH-USD) should not be classified as securities.

The Financial Services and Markets Authority (FSMA) of Belgium released a document on Thursday that stated cryptocurrencies without an issuer are not securities.

The regulator specifically identified bitcoin and ethereum as exempt from having to operate as securities within the EU country’s financial system.

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The document said: “If there is no issuer, as in cases where instruments are created by a computer code and this is not done in execution of an agreement between issuer and investor, for example, bitcoin or ether, then in principle the Prospectus Regulation, the Prospectus Law and the MiFID rules of conduct do not apply.”

EU-based MiFID rules say that transferable instruments with an issuer are likely to constitute a security.

Apart from bitcoin and ethereum, other cryptocurrencies will be designated as having a centralised issuer and so will have to produce an honest prospectus of information for potential investors and adhere to the EU’s MiFID rule which requires financiers to avoid conflicts of interest.

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The exemption of ethereum from securities laws by the Belgian regulator sets a precedent in the development of cryptocurrency regulatory frameworks across the world.

In an unusual alliance, both bitcoin maximalists — those that advocate only bitcoin and renounce all other cryptocurrencies — and US regulators argue that ethereum is a security.

They point to the presence of a centralised body, called the Ethereum Foundation, and that its issuance can be controlled via updates of the underlying code.

However, the Ethereum Foundation states on website that it is a non-profit organisation with a goal of supporting Ethereum and related technologies.

The website says: “The Ethereum Foundation is not a company or even a traditional non-profit. Their role is not to control or lead Ethereum, nor are they the only organisation that funds critical development of Ethereum-related technologies.”

Some argue that Ethereum is a security as it has a recognisable co-founder, Vitalik Buterin, and holders of the cryptocurrency can stake their assets and generate yield.

US Securities and Exchange Commission (SEC) head Gary Gensler has said on multiple occasions that if you can generate staking with a crypto asset, that makes it a security.

Ethereum can be staked under the cryptocurrency’s new proof of stake validation method and stakers are rewarded with ether.

In contrast to this, Gensler points to bitcoin’s unique characteristic as a decentralised digital asset without a specific founder, developer team, or foundational body.

Bitcoin was created by the pseudonymous Satoshi Nakomoto in 2011 and has no issuing centralised body nor has it a marketing team or joint enterprise that can profit from inward capital movement from institutional and retail investors.

The move comes as the SEC grapples with how to classify digital assets in the US.

The SEC is currently locked in a legal suit with the organisation that issues the Ripple (XRP-USD) cryptocurrency.

In the SEC vs Ripple case, the defence team argues that Ripple believed XRP, along with bitcoin and ether, are not securities

On Monday, bitcoin was down 0.5% in the past week to $16,209, while ether rose 2.4% to $1,171.