Hinman specifically said that bitcoin is not a security because it is decentralized: there is no central party whose efforts are a key determining factor in the enterprise. In addition, ether is also not a security because the Ethereum network is also decentralized.
Mr. Hinman did not address the securities status of other cryptocurrencies, notably ripple (XRP), which is the subject of a lawsuit alleging that it is a security, noting only that “Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.”
Regarding ICOs, Hinman also acknowledged that some digital assets could be structured more like a consumer item than a security, particularly if the asset is purchased for personal use and not intended as an investment. Hinman seemed to imply that these types of offerings–an investment in a book club, or a golf club membership, for example — were likely not securities.
Hinman defended the SEC’s strict interpretation of securities laws, noting that “There is excitement and a great deal of speculative interest around this new technology. Unfortunately, there also are cases of fraud.”
Hinman acknowledged that there may still be some confusion on how to determine if any cryptocurrencies and ICOs are securities and that his office was willing to help: “We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use.”
William Hinman will appear on CNBC’s “Closing Bell” at 3 p.m. ET.