After U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton backed a colleague’s analysis that tokens like ethereum may not be securities this week, panelists at the TOKEN2049 event are raising questions over one criteria suggested by the regulators.
Asked whether and how regulators have the power to define a threshold that William Hinman, SEC director of corporation finance, described last year as “sufficiently decentralized,” Gabor Gurbacs, Digital Asset director at VanEck, said he believes it doesn’t make sense to say “if something is sufficiently decentralized, it’s not a security.”
Gurbacs’ firm has been closely working with regulators in the U.S. in its attempt to launch trading of the first bitcoin-based exchange-traded fund (ETF). He explained that, to a certain extent, even the traditional financial market could be seen as decentralized, such as the exchange-traded fund system or other capital market functions. “But they all fall under the security law,” he said.
Using the basis of being “sufficiently decentralized” to determine whether a crypto asset is a security was brought up by Hinman during a speech in June 2018, during which he said:
“If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract.”
In a letter responding to Congressman Ted Budd and industry advocacy group Coin Center dated March 7, Clayton said he agreed with Hinman’s analysis that found ethereum, the world’s second-largest cryptocurrency, likely does not qualify as a security.
In the TOKEN2049 panel, Sandra Wu, founding partner of Hong Kong-based venture firm Origin X Capital, also weighed in, saying that while Hinman’s comments explained a stance on projects that issue tokens as a centralized organization, it does not clearly explain the case for projects like ethereum where tokens were issued from an organization that, arguably, has grown more decentralized since.
“What about everything in between (the two situations), where you have the birth of a network but it takes time (for the ownership of the tokens) to become sufficiently decentralized? The SEC has not given guidelines on everything in between.”
Gurbac also reiterated that the SEC has, in fact, still not given a formal ruling that ethereum is not a security, and that he doesn’t think there will be a decision soon. That’s also a reason why his firm exclusively focuses on pushing an ETF with bitcoin as an underlying asset, which is treated as a commodity by the commission.
“Make no mistake the chairman of the SEC never said ethereum is not a security. Director Hinman only said … right now, it may not be a security,” Gurbacs said, concluding:
Coinbase has launched a new feature allowing user to directly transfer cryptocurrency holdings on Coinbase.com to accounts in the firm’s Wallet app.
The San Francisco-based cryptocurrency exchange announced the news in a blog post on Tuesday, saying that users will be able to link their accounts once the app gets updated in the “next few days.”
“Once your Coinbase account is linked, you can easily transfer crypto to your Wallet app with just a couple of clicks, anytime you need it,” the exchange said.
Coinbase explained that with the Coinbase.com account, users can buy cryptocurrencies and the exchange itself stores the keys centrally. However, with the Wallet app, users safeguard their own private keys.
The new feature is optional. After the app update is released, users will receive an in-app notification to “Connect to Coinbase” to link the accounts if they so choose.
The account linking can be turned on or off at a later date from the Settings menu, the exchange said, adding that the feature would add convenience for Coinbase users that regularly transfer funds from their Coinbase.com account to a software or hardware wallet.
Coinbase is also planning a future update that will allow cryptocurrencies to be directly sent to users’ Coinbase.com accounts from the app.
Also in February, Coinbase announced that Wallet users would be able to back up their private keys on personal cloud storage platforms Google Drive and Apple iCloud.