The Securities and Exchange Commission has clarified that Bitcoin is not security in reply to a firm’s registration application. The Division of Investment Management staff has issued a reply recently mentioning that Bitcoin cannot come under the ‘security’ umbrella.
Recently, Cipher Technologies Bitcoin Fund approached the Securities and Exchange Commission to be listed as a ‘closed-end interval fund.’ To achieve this status as per the Investment Company Act 1940, it submitted that Bitcoin is classified as a security. It reiterated this stance during its written and verbal communication with the commission.
However, people at SEC differed with this stand as per the Howey framework under which they classify digital assets.
Bitcoin is not security clarifies many doubts
SEC issued a reply to Cipher’s filing where it mentioned that present owners of Bitcoin do not depend on the industrial and administrative activities of individuals to create a profit. Subsequently, Cipher plans to make heavy investments in Bitcoin under its current plans. Thus, the N-2 form submitted by the company cannot be accepted.
Further, if Bitcoin is considered a security, myriad other concerns can emerge. Bitcoin will become a huge ‘publicly offered security,’ albeit an unregistered one. Such a stance would then classify the underlying fund as an underwriter. Moreover, Cipher was not able to address various other concerns regarding safety of investors, especially with regards to custody, valuation, and prospective Bitcoin price fluctuations in the unregulated markets.
Due to the above-mentioned reasons, the SEC recorded that Cipher could not be registered as an investment company and Bitcoin is not security. It means that SEC is avoiding opening up a Pandora ’s Box by not going on that route. There will be no further review by SEC on its order. If Cipher wants to bring in significant changes to its proposal, then SEC is open to review.
Though this statement is not considered a binding precedent, it must be taken as a concrete argument that Bitcoin is not considered security as per SEC guidelines. Such a public confirmation is enough to guide other firms who wish to make similar proposals. This is in line with its recent rather strict stance on the crypto realm. SEC is relying upon its framework document launched earlier in 2019, where it laid out details of its digital assets classification.
