Recently, the SEC’s Director of Corporation Finance provided long overdue insight on cryptocurrencies. In particular, he indicated that Bitcoins, Etherium, and other such coins functioning on certain decentralized platforms are not securities. Our partner, Kristen Howell, authored a fascinating and informative alert on this topic. See https://www.foxrothschild.com/publications/sec-bitcoin-is-not-governed-by-securities-laws/. We commend it to anyone interested in this area.
Essentially, the SEC Staff has taken the position that, various cryptocurrencies operating from a central control group, who target passive investors, will be engaging in a securities offering while less centralization focusing in on purchasing goods or services will be less likely to be considered a security. The SEC Staff also suggested that those interested in this field should consider seeking formal interpretive or no-action letter guidance so as to avoid the potential pitfalls. The SEC Staff also indicated that securities registration may end up being required if there is a central group/promoter offering an increase in value; raising excess funds that are more than necessary for the actual network; having purchasers looking for a greater return than the current value; and a directed sales effort.
Thus, it is critical to seek out legal counsel before engaging in cryptocurrency networks and offerings.