Jay Clayton, head of the US Securities and Exchange Commission (SEC), told CNBC yesterday that non-ICO cryptocurrencies are not securities. He said those that replace fiat currencies and do not promise a return on investments will not be regulated by the SEC.
Clayton said: “Cryptocurrencies: These are replacements for sovereign currencies, replace the dollar, the euro, the yen with bitcoin … That type of currency is not a security.”
A security is defined in the US as an investment where the issuer offers some form of return or expectation of future value increase. Previously, Clayton has said that all Initial Coin Offerings (ICOs) are securities. ICOs offer investors the chance to buy crypto tokens in advance at lower than the market price. A company running an ICO will offer discounts, such as 30% off the expected market price, indicating that the price of the token will rise over time.
Clayton defined securities as: “A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’ that is a security and we regulate that. We regulate the offering of that security and regulate the trading of that security.”
The SEC has previously said that it will not regulate all ICOs at this moment in time but will focus on fraudulent ICOs and educate the public. Recently, it launched a fake ICO website for HoweyCoins which told investors they had been scammed when they tried to buy the coins. This is a reference to the 'Howey Test' which is used to determine if an investment is a security or not.
Clayton also said that the SEC is not looking to redefine the definition of a security and that it is still applicable even though the face of investments are changing. He also stated that they are not looking to change the rules for running ICOs and that companies should follow the private placement rules. If they want to do an IPO, he suggested they should register with the SEC.