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Cryptocurrency as Security according to Crypto Hedge Fund Executive

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Cryptocurrency hedge fund Multicoin Capital’s managing director Kyle Samani believes the majority of the top cryptocurrencies could be considered securities, given SEC Director William Hinman’s statement on June 14, Thursday.

In a 17-part tweet, Samani discussed the guidelines issued by the Securities Exchange Commission (SEC) on June 14. Hinman, the head of the SEC’s division of corporate finance, was responsible for revealing to the public the agency’s stance on cryptocurrencies.

Although the SEC director clarified that a digital asset by itself cannot be considered a security. However, depending on how its creators handle its advertising and sales, it can become a security.

Both Samani and Hinman agree bitcoin and ethereum are examples of this latter type of digital asset and thus are not securities. In Hinman’s words:

“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.”

Simply put, tokens which depend on an identifiable person or group to succeed will be considered securities — unlike those assets which are truly decentralized and no single entity can control it.

Hinman also released a list of questions to help distinguish security tokens from a utility. It should first be assessed if the promoters are playing a significant role in the project or if they hold a significant amount of tokens — as in, a majority of them. In cases where promoters raise too much money than what necessary, it is important to hold the team accountable. If no explanation is given, there should be a red flag raised somewhere, he said.

According to Samani, “sufficiently decentralized” isn’t a quantifiable measurement and could lead to ambiguity. In Hinman’s example, if a person was to place bitcoins in a fund and sell interests, this particular product would then be considered a security.

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