Recently, William Hinman, who is the head of division of Corporation Finance in the SEC stated that decentralized cryptocurrencies like Ether cannot be considered as a security. The investors were pretty worried about cryptocurrencies being regarded as securities. If indeed, that would have happened it would have been very difficult for the investors to avoid higher taxes. Moreover, the decentralized structure of the cryptocurrencies would have been compromised as well.
Ether increases by 8%:
However, in a relief rally, after this particular announcement came out, Ether has increased by 8%. This clearly indicates that investors are happy with the end of the uncertainty. As this uncertainity ends, it will become easier for the investors to invest in the decentralized cryptocurrencies.
According to him, any cryptocurrency which is decentralized cannot be considered as a security. Moreover, the expectations of the buyer of the cryptocurrency are to be taken into account while deciding whether it is a security or not. The cryptocurrency buyers have a very limited expectations from the development team or from the entrepreneur who is managing the cryptocurrency. That is why they cannot be considered as a security. This clearly indicates that most of the cryptocurrencies cannot be considered as securities.
However, the problem which arises is that by this definition, some of the cryptocurrencies can indeed be considered as securities. This is one of the main reasons why investors are also confused. Ripple (XRP) can be considered as a security by that definition. The number of tokens which are held by the Ripple development team are much higher as compared to some of the other cryptocurrencies. As a result, it is not entirely decentralized. This means that authorities will be looking at this token in order to decide whether it is a cryptocurrency or whether it is a security.
When you look at the definition, you will realize that most of the other cryptocurrencies will not be classified as securities. This will mean that the users will be able to trade them quite easily. Moreover, larger amounts can be invested in the cryptocurrencies quite easily after this announcement. In a relief rally, the cryptocurrency also increased by 8%. The excitement was also shared by some of the other cryptocurrencies as well. Bitcoin (BTC) also increased by $ 350 after this announcement. This clearly indicates that investors are happy about the classification of cryptocurrencies as a proper currency rather than as a security. It remains to be seen whether this a relief rally lasts or whether the cryptocurrencies are again sold off.