TL;DR: RAGE CLICK is a deeper look at crypto media, inspired or industry. Journalists are tired, entitled, self-righteous. CoinSpice periodically documents supporting examples in an effort to encourage critical reading, better consumers, literate producers. That, and we’re pompous gasbags who love to vent. This RC installment takes on recent headlines such as, “SEC Chairman Clayton just confirmed Commission staff analysis that Ethereum (and cryptos like it) are not securities,” “Newsflash: SEC Chief Confirms Analysis That Ethereum isn’t a Security,” “US SEC Chairman Jay Clayton Confirms ETH Is Not a Security,” “US SEC Chairman Jay Clayton Confirms ETH Is Not a Security,” “SEC Chair Clayton Affirms Agency’s Stance Ether Is No Longer a Security,” and our personal favorite, “SEC Chairman Affirms Stance that Ethereum (ETH) is Not a Security, Could XRP be Next?” Um, no, he didn’t.
Damn it, the SEC Chairman Did NOT Say Ethereum is Not a Security!
A lot of people have a lot of money tied to Ethereum, either directly or as a speculative investment. An entire token economy worth many billions of dollars rests upon its platform. That creepy legacy regulators are keen to stick bureaucratic fat faces in technological innovations means doers and producers must grovel, shake, and worry at fates rather than make life better and improve their businesses.
The US Securities and Exchange Commission (SEC) is arguably among the most powerful and simultaneously awful, really bad, regulatory agencies in the history of civilization. Their gaffs and misses are legendary, with the 2008 Great Recession an obvious recent example. Like, literally, the entire world’s economy crashed because they were too busy downloading porn. Imagine if the department of motor vehicles (DMV) was in charge of health care. Now realize the DMV functional equivalent is gatekeeper to the globe’s largest financial markets. It’s a hellish situation any way you slice it.
The Howey Test is a standard by which much SEC jurisdiction hinges. In a Supreme Court decision more than seven decades ago, an investment contract was determined to be one where “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,” basically qualifying such as a security, landing it subject to licensing, registration, odious regulation. Current SEC Chair Clayton has said many times he’s yet to see an initial coin offering (ICO) that didn’t meet that standard.
Ethereum as an ICO
Ethereum, of course, was born from an ICO. Though the semantic math is much more complicated, involving international law and high-falutin’ legalese, whether Ethereum constitutes a security is the question. On the surface, yes. But, again, those who co-founded Ethereum were not and are not dummies nor were they unaware: they had lawyers dotting and crossing every i and t as was understood back in 2014.
For years, then, haters and supporters of Ethereum openly hoped for and worried about SEC determination on the matter. Summer of last year, William Hinman, SEC Director, Division of Corporation Finance, gave a speech to the Yahoo Finance All Markets Summit. In it, especially according to Ethereum enthusiasts condemned to tea leaf reading and priestly declarations from the SEC, Hinman appeared to give the project an all clear. He explained, “Based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”
Longtime watchers of the SEC weren’t so convinced, but for Ethereum proponents it certainly wasn’t bad news. Markets seemed to appreciate the good press, and the coin eventually returned to its coveted number two spot by capitalization, where it sits in relative comfort today. Again, those who understand how the agency works realize such remarks by Hinman were strictly his opinion, and were not a determination nor a beacon of things to come. The issue is simply too complicated.
Coin Center Gets a Response
As a result, back in October of last year, crypto DC lobbying group Coin Center sought clarification on Hinman’s statements. They did so through congressman Ted Budd, who dutifully wrote SEC Chair Jay Clayton, asking his thoughts on Hinman’s Ethereum remarks cited above. On 12 March 2019, Coin Center released Clayton’s response to Budd.
It’s worth reading in its entirety to get a sense of context and how jumbled a mess this all is, but the salient points Coin Center pulled out read as follow: “I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework,” bolded emphasis mine.
Literally nowhere does Clayton mention Ethereum in the three page response. Zilch. Nada. Instead, his answer is, again, subject to a reader’s Rorschach interpretation, palm reading, forms of divination. Lots of hedging. Lots of ifs. Lots of for examples. The most anyone can determine is Clayton isn’t completely, utterly closed to the idea of some digital assets not being securities. That’s it. Of course, facts have never held back crypto news outlets, which continue to suck, a lot.
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