Are Bitcoin, Ethereum, Ripple and other cryptocurrencies considered securities?
This hot-button question keeps coming at me on social media and from clients in the Email so I’d like to present my opinion here in this open forum.
There are a few concurrent stories right now that hinge on this. There is a rising speculation that the SEC could start calling some cryptos securities and if they do that, it creates some rather sticky legal issues for the founders and holders.
Here’s a post that explains why this is such an issue.
And this is a big case that may be the decision maker from a legal standpoint in the US.
Anyway, if the SEC does end up classing them as securities it could cause some extreme volatility in the crypto market, I mean, even more than usual.
If something is classified as a security then it has to be subject to the usual laws and regulations regarding traditional financial assets. Meaning, it needs to be registered with the authorities according to the laws already set in place and be taxable as such. Anyone who has made profits in crypto, and converted those profits into cash, could be liable to pay taxes on those profits.
For example, any new ETF like the one that the Winklevoss twins have just secured a patent for will be classified a security.
Cryptocurrencies, on the other hand, are a different ball of wax. We’re talking about a brand new asset class here and the coins themselves will likely require new sets of rules that are more versatile and designed to encompass this new technology.
Because we live in a moderately diversified world, the laws could end up being different in every country. The Swiss have actually set an excellent precedent in their ICO guidelines, which breaks down the crypto classification into three different categories:
Bitcoin would certainly fall under the first category as it is designed to be a means of payment and store of value.
Ethereum and Ripple’s XRP are classic examples of Utility Tokens. They were designed to interact with their respective blockchains in order to provide access/payment to an application or service within the network.
Asset Tokens, or Securities, implies that the token holder will be entitled to partial ownership in the company or foundation. This can manifest itself as a share of the company’s profits or voting rights within the company.
Though the Ethereum network often holds votes using ETH tokens, the act of holding the token itself does not give the hodler the right to influence the network’s actions. Ripple’s XRP is managed by a private company called Ripple Labs and XRP holders are not entitled to any piece of that company.
This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.
The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.
Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.
Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.
Mati Greenspan is the Senior Market Analyst at eToro, a global social trading and investment platform. Mati is a licensed portfolio manager in the European Union and his main focus is on macroeconomic analysis, portfolio diversification and cryptocurrencies.
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