SEC’s Division Clarifies Bitcoin Isn’t a Security

Wilfred Michael 

Wilfred Michael

News reporter

05 October 2019,
SEC’s Division Clarifies Bitcoin Isn’t a Security

The Division of Investment Management staff of the United States Securities and Exchange Commission (SEC) clarified in a letter dated October 1 that leading cryptocurrency, Bitcoin is not a security.

The SEC staff was writing in response to a registration statement filed by Cipher Technologies Bitcoin Fund (“Cipher”) with the regulator to become a closed-end interval fund and an “investment company.”

In its application with the SEC, as well as in-person meeting with the agency’s officials, Cipher had argued that Bitcoin is a security, a definition that would have allowed the firm to exist as an ‘investment company’ and put all of its assets into Bitcoin.

However, the SEC staff pinpointedly stated that Bitcoin is not a security, both under Howey and the recent securities guideline published by the regulator earlier this year.

Alluding to a popular parameter used by the SEC to determine what assets are securities, the letter mentioned that ‘current purchasers of bitcoin are not relying on the essential managerial and entrepreneurial efforts of others to produce a profit.’

The letter also argued that if Bitcoin were security, then it would “raise substantial other issues” since the asset would be a massive “unregistered publicly-offered security” and the fund being planned by Cipherwould be an underwriter. 

The Staff further noted in line with recent comments by SEC Chairman, Jay Clayton that there are significant legal and investor protection issues, particularly with respect to valuation, custody and potential manipulation in the bitcoin market.

Cipher did not satisfactorily address those concerns, as per the Staff letter, and the company also failed to engage with the staff regarding these issues before “submitting and requesting a review of proposed disclosure in a registration statement.”

It was based on these grounds that the SEC’s Division dismissed Cipher’s request to register as an “investment company,” and indirectly gave more legal clarification about Bitcoin. The verdict also provides evidence that the regulator is making use of its recently published guidelines on crypto assets.


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