The SEC has filed an action against Ripple Labs Inc. (the company behind the digital token XRP) with raising $1.3 billion in what it calls unregistered “digital asset securities”. While there was important short-term price movement across the board in terms of bitcoin, ethereum and XRP prices, the more important implications may play out long-term. It’s worth examining what this means for cryptocurrencies across the board and how theoretical and practical debates about decentralization are already playing out.
As always, this isn’t legal advice of any kind, but rather a walk-through and a bit of a deeper analysis of the news.
SEC director thinks bitcoin and ethereum are not securities for now
At a speech at the Yahoo Finance All Markets Summit on cryptocurrency, William Hinman, the Director of the Division of Corporation Finance at the SEC, specifically laid out that he didn’t think ethereum and bitcoin were securities.
Specifically, he said that “when I look at bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise.” He used similar logic to describe ethereum in its current state. The degree of decentralization he perceives makes a critical difference in the number of actions it can pursue — there is no CEO or organizing body with enough power in bitcoin to pursue in civil charges in the first place, something that is unlikely to change even with radically different leadership. With Ripple and XRP, this is clearly not the case.
While this isn’t a definitive ruling, and it was a speech given by somebody at a separate division than the Enforcement arm of the SEC, it does give a bit of insight into how some people at the SEC think about these matters.
It seems unlikely based on that thread of thinking that the SEC, responsible for the regulation of securities, will go after bitcoin or ethereum except for when they are used in ICOs or other security-like offerings.
In this case however, the relationship between parent company Ripple Labs and the XRP token it provides is what’s at question — and it seems clear that the SEC is investigating that very relation.
Previous SEC actions
The SEC has gone after people offering what they classify as securities in the digital assets space before. Kik, the chat app company, was forced to pay out a fine of $5 million and to inform the SEC of any future sales of digital assets in the next three years in 2017.