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Author Topic: SEC announces that ETH is not a security  (Read 1664 times)
Seetheummerallyeah
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June 14, 2018, 05:38:54 PM
 #1

From The CryptoGraph
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The SEC’s leader on cryptocurrencies and initial coin offerings (ICOs) says that Bitcoin and Ether are not securities but that many, not all, ICOs are securities and will come under the regulatory control of the SEC.

“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” William Hinman, head of the Division of Corporate Finance for the SEC.

Hinman noted that the central issue in determining whether cryptocurrencies and ICOs were securities was the expectation of a return by a third party, specifically whether there was a person or group that sponsored the creation and sale of the asset, and who played a significant role in its development and maintenance. If consumers are promised or are respecting an appreciation in value, and there is a centralized third party, then it can be classified as security according to Hinman.

Hinman specifically said that Bitcoin is not a security because it is decentralized: there is no central party whose efforts are a critical determining factor in the enterprise. Likewise, Ethereum cannot be considered a security because the Ethereum network is decentralized.

Mr. Hinman did not address the securities status of other cryptocurrencies, like Ripple (XRP), which is on the wrong end of a lawsuit alleging that it is a security. Additionally, a platform like EOS, which is controlled by Block.one, seems to be a likely contender for securities regulations. EOS’s system of validation, which delegates power to only 21 nodes, may not be enough decentralization in the eyes of the Securities and Exchange Commission.

Investors have eagerly been awaiting this decision, and we can all breathe a sigh of relief that the SEC continues to favor fair regulation and encourage innovation. Security regulations in the US are stringent and a securities label could remove many US investors from the global crypto market.

News was just announced and prices have already skyrocketed. What are you thoughts on this?
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cellard
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June 14, 2018, 05:44:35 PM
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I was about to post this. In my book, this proves two thing:

1) That someone within the government or at least enough influence to impact's the SEC decision on deciding if Ethereum is a security or not, is bagholding massive bags of Ethereum (maybe not proves, but definitely strengthens this conspiracy theory)

2) That the altcoin bubble has just begun and will continue growing for a long time until something really bad happens technologically in any of the top 10 altcoins, when that happens a mass exodus into Bitcoin will ensue.
By legitimating the Ethereum scam, the altcoin speculation will get as wild as ever. Also anyone going to court for hosting an ICO, they can just point to how Ethereum was called not a security and your token meets the same launch criteria as Ethereum did.
Ogman22
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June 14, 2018, 05:47:18 PM
 #3

I don't know if this is a good news or not i need some one to interpret that for me. I get that they are decentralized and i don't know it implications
icoreview_romania
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June 14, 2018, 05:49:12 PM
 #4

The Ethereum scam? Why so harsh? I'm a Bitcoin maximalist myself, but it's impossible to deny the positive effect that ETH has had on our ecosystem. As for bag-holding, I wouldn't quite put it like that. To me it's more a question of "Do we want to kill this ailing market dead right off the bat? Or are we curious to see where it could go."

So yeah, overall loving this news, even though I hold exactly 0 ETH at the moment.
zubrr51
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June 14, 2018, 05:50:28 PM
 #5

One should not trust them 100%, maybe they pursue their interests, because they are confident that they are listened to and can affect the price.

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jatoman
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June 14, 2018, 05:52:01 PM
 #6

This ruling makes sense, and is an important ruling because it makes a clear distinction between an existing cryptocurrency, which has utility inherent within it, versus an initial coin offering that raises capital for a yet to be created cryptocurrency, which until it exists, has no utility.  
cellard
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June 14, 2018, 05:59:23 PM
 #7

The Ethereum scam? Why so harsh? I'm a Bitcoin maximalist myself, but it's impossible to deny the positive effect that ETH has had on our ecosystem. As for bag-holding, I wouldn't quite put it like that. To me it's more a question of "Do we want to kill this ailing market dead right off the bat? Or are we curious to see where it could go."

So yeah, overall loving this news, even though I hold exactly 0 ETH at the moment.

Ethereum praises itself as "decentralized" and wanted to push this narrative of how "code is law" for their smart contracts; we all know what happened with the DAO. The whole point of smart contracts is a joke if a faulty smart contract can deliver a hardfork that creates a new altcoin as a result, all of this mess which resulted in holders losing money just to socialize losses of bad coding.
I don't even know what to call Ethereum anymore but it is sure not money let alone a store of value. This is why people pretending it's more valuable than Bitcoin are straight scammers.

The SEC are a bunch of scammers too by arbitrarily ruling out Ethereum's launch characteristics which make it a security. They literally ignored that part. Well, now anyone should be able to keep launching tokens via this same method and then point to Ethereum as reference to prove it's not a security and bypass the law, I wonder what kind of bullshit excuse they would come out with if someone tries that.
FrueGreads
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June 14, 2018, 06:04:30 PM
 #8

The news are great, but I don't think that is the reason why the prices skyrocketed. Most good news don't have a real influence in the prices these days, and the bad news are used for dumps. Not that they justify the dump, but I guess people who want to short bitcoin, use them to have a greater effect on the price.

Right now, what we are seeing in the markets, probably has a high dose of manipulation in my opinion. I guess it wont matter in the long run though, when adoption gets high enough for these moves to have no effect on the price.

Anyway, like I said before, those are indeed good news though, which is great.

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cellard
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June 14, 2018, 06:06:52 PM
 #9

This ruling makes sense, and is an important ruling because it makes a clear distinction between an existing cryptocurrency, which has utility inherent within it, versus an initial coin offering that raises capital for a yet to be created cryptocurrency, which until it exists, has no utility.  

It doesn't make sense to me. Explain why Ethereum is any different from the other ICO's which were outlawed? They raised capital the same way too, and offer whatever service, service expectations being meet or not. Ethereum has already failed to meet "code is law" expectations.

The news are great, but I don't think that is the reason why the prices skyrocketed. Most good news don't have a real influence in the prices these days, and the bad news are used for dumps. Not that they justify the dump, but I guess people who want to short bitcoin, use them to have a greater effect on the price.

Right now, what we are seeing in the markets, probably has a high dose of manipulation in my opinion. I guess it wont matter in the long run though, when adoption gets high enough for these moves to have no effect on the price.

Anyway, like I said before, those are indeed good news though, which is great.

These news create quick pumps due an uncertainty that has been there for a long time being resolved, so I see both BTC and ETH going up, if it's enough to end the bear trend is another story.
jatoman
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June 16, 2018, 06:15:51 PM
 #10

This ruling makes sense, and is an important ruling because it makes a clear distinction between an existing cryptocurrency, which has utility inherent within it, versus an initial coin offering that raises capital for a yet to be created cryptocurrency, which until it exists, has no utility.  


It doesn't make sense to me. Explain why Ethereum is any different from the other ICO's which were outlawed? They raised capital the same way too, and offer whatever service, service expectations being meet or not. Ethereum has already failed to meet "code is law" expectations.

Ethereum isn't an ICO; instead, it is a blockchain network and development platform.  It has a cryptocurrency, ether, associated to this blockchain.

The Ethereum ICO ended several years ago, where it raised scores of millions USD so that the Ethereum Foundation could create the software that is the Ethereum Platform.

An ICO is a fund raising method where investors buy rights to a specified number of tokens in the future.  These "rights" are a security for several reasons according to US Law.  First, on issuance they have no inherent value because you can't use them as a medium of payment, can't trade them, or can't exchange them for fiat currency.  Second, and perhaps most importantly, according to the US Securities and Exchange Commission or "SEC" because the reason investors buy these rights is they expect it to go up in value over time resulting in a profit when they can trade them or exchange them, that by definition in US Federal Law makes an ICO a security.

The reason why some ICOs are outlawed, at least in the United States, is because they don't follow US Federal Law for securities.  These laws protect unsophisticated investors from scams, where the organization offering the ICO defrauds investors.  ICO scams are prevalent.  Thus why the SEC is investing a lot of energy into enforcing US Federal Law..

So, there is a HUGE difference between Ethereum and ICOs.

Now, what is less of a distinction, and the reason why the SEC ruling is so important, is the difference between a cryptocurrency such as ether and a security, like commodities such as gold, oil, and silver.  Presently, most purchases of ether, and other cryptocurrencies, is as a store of value with the intention to hold it until it goes up in value.  In this way it is a security per US law.

Here is the key distinction... some cryptocurrencies such as bitcoin and ether can be used as a medium of payment.  This means they have inherent value because sellers are willing to trade a cryptocurrency for goods or services.  Further, there are currency exchanges that will exchange a cryptocurrency for fiat currency.  This means they are liquid.

The is gist of this ruling.
aoihs00
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June 16, 2018, 06:21:48 PM
 #11

Yup came across this news and was really relieved to hear that one. The is great news for my crypto friend circle with whom I am doing the ETH mining and obviously ETH getting some relaxing news makes us relaxed. This can set the future of ETH very well and might tell others to invest into it as it gets more or less lawful orders. ETH always has been great platform and it was supposed to get attention with SEC and other big entities regulating the share markets and securities. I hope this news will slowly surge through everyone's eyes and more positive sphere will keep pumping.
Oniko
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June 16, 2018, 06:24:42 PM
 #12

SEC expresses such an opinion to all crypto-currencies. Now there are big manipulations with the market and this can not be called fair trade.

The SEC can and should control the rules of the game
jatoman
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June 16, 2018, 06:30:42 PM
 #13

SEC expresses such an opinion to all crypto-currencies. Now there are big manipulations with the market and this can not be called fair trade.

The SEC can and should control the rules of the game

They ARE trying.

It's challenging because blockchain and cryptocurrencies are so new.  There are many aspects that are unclear, and these ambiguities impact the market.

So, one by one, they are addressing these aspects.  With each ruling it establishes a "rule of the game".  This helps stabilize markets.

Declaring that cryptocurrencies are NOT securities is an essential ruling to allow them to become a medium of payment. 

rozenkreitzer
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June 16, 2018, 06:34:36 PM
 #14

I am very interested in what consequences this statement of the SEC can bring? Will this affect the ethereum in the negative or not?
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June 16, 2018, 06:40:41 PM
 #15

SEC is one of that fiatwhale supporters that now joined this game to manipulate with crypto price without adding something useful in this field Angry
They just ban, or allow - but to allow you don't need to be special. For ban also. Useless part in crypto development as for me Undecided
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June 16, 2018, 06:44:38 PM
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Adding "rules of the game" helps stabilize the market.  Stability helps the market because it makes the market more predictable.  Investors like predictability.

Still, cryptocurrencies are like commodity trading in that while they are predictable they are still subject to wide swings in price due to unforeseen changes in market conditions.
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June 16, 2018, 08:37:10 PM
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SEC is one of that fiatwhale supporters that now joined this game to manipulate with crypto price without adding something useful in this field Angry
They just ban, or allow - but to allow you don't need to be special. For ban also. Useless part in crypto development as for me Undecided
Actually, the SEC is quite supportive of blockchain and cryptocurrencies.  They are working hard to create the rules that provide the infrastructure that will allow widespread use.

These rules are extremely useful.

The SEC's priority is protecting unsophisticated investors who aren't savvy enough to detect ICO scams AND can't afford to lose their money in such scams.  There are a lot of ICOs that are scams.  So, these "bans" are helpful.

Now, by declaring cryptocurrencies NOT a security, this SEC ruling opens the way for any investor, regardless of their sophistication or ability to afford losing their investment, to buy cryptocurrencies as an investment. 

It also opens the ability to use cryptocurrencies as a medium of payment as well as other uses.

That seems quite helpful to crypto development.

By declaring ICOs a security, it restricts investors residing in the United States to only "Accredited Investors".  This means only Accredited Investors may invest in ICOs.  That's unfortunate to savvy investors who are quite capable of distinguishing a scam from a legit ICO as well as can responsibility restrict their investment budget, BUT who aren't Accredited Investors.
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June 16, 2018, 08:46:31 PM
 #18

This is just proves that ethereum is going to be in here for more than years and that it is accesible to almost everyone on the US and all the other countries . Those are very good news
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June 18, 2018, 12:53:56 PM
 #19

Here is the key distinction... some cryptocurrencies such as bitcoin and ether can be used as a medium of payment.  This means they have inherent value because sellers are willing to trade a cryptocurrency for goods or services.  Further, there are currency exchanges that will exchange a cryptocurrency for fiat currency.  This means they are liquid.

The is gist of this ruling.


No token project at the beginning is going to have liquidity therefore it's not going to be viable as a medium of payment... so any new token from now on is a security if judging by this.



By declaring ICOs a security, it restricts investors residing in the United States to only "Accredited Investors".  This means only Accredited Investors may invest in ICOs.  That's unfortunate to savvy investors who are quite capable of distinguishing a scam from a legit ICO as well as can responsibility restrict their investment budget, BUT who aren't Accredited Investors.

What's ironic is if Ethereum came out today it would qualify as a security because it would lack the liquidity part which judging by what you said is what made the SEC not count it as a security, so it wouldn't have allowed all these early investors to get rich because im sure 0% of them would qualify as  "accredited investors". Most early Ethereum investors im sure were geeky guys that were interested in Bitcoin and browsed this forum looking for the next big thing go make massive gains with since they missed the Bitcoin boat.
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June 18, 2018, 06:21:19 PM
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Here is the key distinction... some cryptocurrencies such as bitcoin and ether can be used as a medium of payment.  This means they have inherent value because sellers are willing to trade a cryptocurrency for goods or services.  Further, there are currency exchanges that will exchange a cryptocurrency for fiat currency.  This means they are liquid.

The is gist of this ruling.


No token project at the beginning is going to have liquidity therefore it's not going to be viable as a medium of payment... so any new token from now on is a security if judging by this.



By declaring ICOs a security, it restricts investors residing in the United States to only "Accredited Investors".  This means only Accredited Investors may invest in ICOs.  That's unfortunate to savvy investors who are quite capable of distinguishing a scam from a legit ICO as well as can responsibility restrict their investment budget, BUT who aren't Accredited Investors.

What's ironic is if Ethereum came out today it would qualify as a security because it would lack the liquidity part which judging by what you said is what made the SEC not count it as a security, so it wouldn't have allowed all these early investors to get rich because im sure 0% of them would qualify as  "accredited investors". Most early Ethereum investors im sure were geeky guys that were interested in Bitcoin and browsed this forum looking for the next big thing go make massive gains with since they missed the Bitcoin boat.

As far as US security law, there are two phases of raising capital for a project.  The "Network Launch" is what separates these phases.  Network Launch by definition is when the the network is operational allowing the public to purchase and use tokens. 

Provided there is a use for the token (which, presumably, is what the token designers designed to token to do) the token becomes a utility token, and thus isn't a security according to US securities law, and this announcement confirms the SEC understanding.

Prior to Network Launch there aren't tokens because the network is under construction.  In this phase, investors can purchase rights to a number of tokens at Network Launch.  These rights are considered securities.

So, an ICO is really organized into two phases:

Pre-ICO - prior to Network Launch
ICO - after Network Launch

In the early days of Pre-ICOs, such as the Ethereum ICO circa 2014, the offering to purchase rights to tokens were open to anyone.  This was a violation of US securities law.  It's only recently that the SEC has realized this, and now is enforcing the law.  Just ask the folks at Munchee.


The result is for Pre-ICOs organized under US law are no longer open to anyone.  This locks out a lot of savvy investors such as blockchain enthusiasts who aren't accredited investors.  These investors must wait until Network Launch.  At this stage, the ROI is typically dramatically less than early rounds during the Pre-ICO phase.  Of course, it's also dramatically less risky thus the lower return.

The law surrounding ICOs is new and evolving.  Everytime the SEC makes a ruling, it helps attorneys understand the "rules of the game", and in turn help their clients.  This is quite helpful.


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