SEC confirms in writing: Bitcoin is not a security in the USA

• In a recently published letter, the US Securities and Exchange Commission confirms for the first time in writing that Bitcoin (BTC) is not a security.
• The Cipher Technologies Bitcoin Fund had applied for recognition as an investment company under US law.

The question of whether cryptocurrencies such as Bitcoin, Ethereum or Ripple can be classified as securities has been occupying the crypto community since the beginning of last year. Especially in the United States of America the topic is a hot topic. The responsible financial supervisory authority, the Securities and Exchange Commission (SEC), was largely reticent last year. Now, however, there seems to be some movement in the entire discussion.

As CNF reported, a few days ago the SEC judged that the Initial Coin Offering (ICO) of EOS constituted a sale of unregistered securities. However, the EOS Coin itself was not classified as a security. Siacoin (SC) received the same judgment from the SEC. Numerous other cryptocurrencies, on the other hand, are still waiting for a ruling from the SEC.

1/ The BlockOne & Nebulous enforcement actions could be the most important moves from the SEC since June 2018, when Bill Hinman said bitcoin & ether aren't securities.

Call me crazy, but I think the SEC believes EOS & Siacoins aren't securities either. That's huge. Here's why.

— Jake Chervinsky (@jchervinsky) October 1, 2019

Bitcoin looks a little different. Already in June 2018, SEC Chairman Jay Clayton declared that he believes Bitcoin is not a security because it acts as a substitute for sovereign currencies. But there was no written confirmation of this until a few days ago.

Bitcoin is not a security in the USA

This has now changed. The SEC issued a letter on October 01. Philip Liu, an employee of the crypto investment consulting firm Arca, pointed out the publication yesterday. In a motion, the Cipher Technologies Bitcoin Fund (“Cipher”) argued that Bitcoin is a security. However, the SEC denied this.

A very significant comment letter: the first where the SEC has stated emphatically that bitcoin is NOT a security under US law in a registration filing: https://t.co/pk8GBxZHUM.

— Philip Liu (@PhilipLiu) October 5, 2019

The background to Cipher’s application was the company’s intention to register as an investment company under the Investment Company Act of 1940. However, to be registered as an investment company, Bitcoin would have had to be a security within the meaning of American law.

The SEC judges in the letter that Bitcoin does not correspond to the description of a security in the sense of the Howey test. In addition, BTC did not meet the criteria of the SEC’s Digital Asset Framework, which was published in April of this year:

We believe that this conclusion is incorrect in light of both the SEC’s Howey Test and the framework that employees use to analyze digital assets.

Among other things, we do not believe that current buyers of Bitcoin are relying on the essential entrepreneurial efforts of others to make profits. As Cipher intends to invest substantially all of its assets in Bitcoin as currently structured, it does not meet the definition of an “investment company” under the Investment Company Act and has improperly filed Form N-2.

The SEC’s decision should come as no surprise to many market participants and observers. Nevertheless, the SEC’s letter states for the first time in writing that Bitcoin is not a security. However, it should be noted that the letter is not a regulation or a binding precedent.