The SEC Has No Option but Classify BTC As A Utility

May 11, 2021 - Crypto News, Expert Commentary

SEC Bitcoin Approved

Regulatory clarity is the final domino in global cryptocurrency adoption. 

Bitcoin has had a historically fast ascendance. Sure, the first few years felt like a slow winter march in obscurity. The last few years have been stratospheric, placing Bitcoin firmly among the world’s leading financial assets.

Inevitably, legal questions began to emerge. Cryptocurrencies may operate in a decentralized manner, but regulators can still handicap development. Aspects of Bitcoin trading, taxation, and acceptance hinge on regulatory policies. 

Therefore, agencies like the Securities and Exchange Commission (SEC) have a crucial role in Crypto’s future. The elephant in the room is whether specific cryptocurrencies violate securities laws. 

The SEC and the securities questions

 Last year, the SEC released a bombshell when it announced a lawsuit against Ripple Labs for alleged violation of securities laws. The regulator claimed that Ripple engaged in unlawful sales of XRP in violation of Sections 5(a) and 5(c) of the U.S. Securities Act of 1933. The case essentially claims that Ripple Labs sold the tokens to investors with the promise of generating more value down the line. 

XRP had an immediate price slump as the crypto community tried to understand the impact of the lawsuit.  Since then, Ripple Labs has won two rulings that are part of the suit. XRP prices have thankfully recovered as the community expects the crypto platform to emerge victoriously.

That is the danger of a coin finding itself in regulatory crosshairs. A similar classification handicapped the Telegram Open Network (TON). It looked very promising, having had the largest Initial Coin Offering (ICO) in cryptocurrency history. 

With all this, Bitcoin enthusiasts had a reasonable concern about what the SEC would do. The previous SEC chair, Jay Clayton, had previously hinted that Bitcoin is not a security. 

The SEC Is Yet to Take an Official Position on Bitcoin and Ethereum

In a recent conference call, Dugan Bliss, the senior trial counsel at the SEC, stated that the agency had not taken an official position on the regulatory status of Bitcoin and Ethereum. This clarification came during proceedings before Magistrate Judge Sarah Netburn. 

Bitcoin will likely escape this securities classification. It came up organically, unlike many other cryptocurrencies that utilized crowd sales. Additionally, the 2019 comments by Jay Clayton indicated that the agency has already made up its mind on Bitcoin.

Ethereum does not have that level of certainty. 

In 2018, the former director of the SEC’s Division of Corporation Finance, Bill Hinman, implied that ETH sales did not violate securities laws. However, Bliss walked back those comments in the conference call, stating that it was the former director’s personal position. 

Incoming SEC chair Gary Gensler also added fuel to the fire by stating that Ether and XRP could be non-compliant securities. Gensier views Bitcoin as a commodity. He noted that the concern is the extent to which somebody is offering an investment contract and security that’s under the SEC’s remit and exchanges that operate there.   

Under these criteria, Bitcoin is certainly a commodity. The Commodity Futures Trading Commission (CFTC) has long classified Bitcoin as a commodity. 

Therefore, Bitcoin holders operate with more confidence. It is likely that if and when the SEC takes an official position, it will not bring Bitcoin’s legal status into jeopardy.

Ethereum holders will be anxious. It would be of great service if the SEC came through with the classification soon enough. These cryptocurrencies are growing by the day. The more protracted regulatory uncertainty becomes, the worse the ramifications if the SEC emerges on Ether’s negative side.

Bitcoin Is Going to Be Just Fine

The SEC, CFTC, and the IRS have all hinted at their favorable view of Bitcoin. Bitcoin did not emerge as an investment contract that raises securities questions. Therefore, the SEC’s crosshairs will likely be elsewhere. 

For years now, the IRS has classified Bitcoin as property for purposes of taxation.  All roads seem to be leading to Bitcoin getting a utility classification. 

This classification would further entrench Bitcoin’s legal standing. There is little in the way of the Bitcoin freight train that seems unstoppable. The coin has grown beyond the wildest dreams of many of its first believers. 

SEC Commissioner Hester Peirce has compared banning Bitcoin, at this point, to try to shut down the internet. It would be foolish to attempt any such thing. The agency will also be missing out on the innovation around virtual currencies if it goes the restrictive route. 

Legal clarification on a long-sought Bitcoin price exchange-traded fund (ETF) is also necessary. The unprecedented Bitcoin price surge will make the agency have to clarify such questions. Institutional interest in Bitcoin is soaring. Such institutions are investing historic amounts in virtual currency. There is a concerted need for further regulatory clarity on Bitcoin. 

Regardless, Bitcoin will be on the favorable side of regulatory measures. The coin is simply too entrenched in the financial world to attempt any restrictive approach. Besides, the SEC’s track record seems to indicate that it will come on the brighter side.

This Is the Time to Get into Bitcoin

Bitcoin is not done in its ascendance. Its status as a reserve store-of-value asset has taken further dimensions. Tesla’s recent billion-dollar splurge on Bitcoin was a home run for the once-fringe cryptocurrency. 

The best time to get into Bitcoin was ten years ago; the next best time is now. Regulatory questions have lingered for a while and will continue till all regulatory agencies put down the gauntlet. All the smoke has not deterred Bitcoin’s momentum.

Bitcoin has put its critics to shame. The coin surpassed a historic $1 trillion market capitalization in recent weeks representing a remarkable milestone. 2021 has been a terrific year for Bitcoin holders. They have seen their fortunes quadruple in a surprisingly pleasant rally. 

The time to get into Bitcoin is now. Sure, Bitcoin has its fair share of ups and downs. However, institutional adoption is an acknowledgment of its general trajectory. Bitcoin will have more heights in the future that may make current historic prices seem trivial.

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