Today, a number of experts designate cryptocurrencies as a kind of digital assets, they argue that cryptocurrencies provide the user with the opportunity to solve specific real problems, and this causes them to have a certain value.
The New York’s Fiduciary Access to Digital Assets Act states that a digital asset means some electronic record, such as data, text, emails, documents, audio, video, sounds, social media content, codes, health and insurance records, the original computer codes, computer programs, software for licenses, databases, etc., including user names and passwords created, generated, sent, transmitted, transmitted, received or stored electronically on a digital device for which the person has a right or interest. This term does not include an underlying asset or obligation if that asset or obligation itself is not an electronic record.
The digital money market is too young, so the legislative field has not been formed for the time being, to say the least. And to be more precise, the cryptocurrency industry is still too far from structured regulation at the international level. However, financial regulators are already drafting the first legislation to help make this market more sustainable and secure. The Strategic Center for Innovation and Financial Technology (FinHub), which operates under the SEC, published a fairly large analytical knowledge base in April 2019. Based on these data, it is possible to understand whether a token belongs to the “securities” category. This is important to know in order to understand whether an asset is subject to regulation under U.S. federal securities laws.
If you issue a cryptocurrency and you declare that these are securities, then you will inevitably face sanctions from the monitoring authorities. Proceedings threaten not only to take away from you a huge amount of time, but can also cost a lot of money. That is why it is so important to understand in which case, in accordance with the legislation and the guidance issued by FinHub, your cryptocurrency is a digital asset, not a securities and declare it accordingly.
Chairman of the US Securities and Exchange Commission (SEC) Jay Clayton expressed the opinion that Ethereum, the second cryptocurrency in terms of capitalization, just like Bitcoin cannot qualify as a security, since its decentralized structure, current offers and sales of ETH do not constitute transactions with securities. But it is important to consider that “the status of a digital asset as a security cannot be static” and, therefore, can change over time.
The Commission notes that the cryptocurrency may be sold as a security immediately after issue, in accordance with the definition of an investment contract. However, over time, the digital asset may no longer be sold or offered to other users as an investment object. For example, if buyers no longer have reason to expect a person or group of individuals to show managerial effort and entrepreneurial ability. Under these circumstances and digital asset could not be represented by the Investment contract.
To any action recognizes transactions with securities, must be met three criteria:
• Investment of funds.
• Funds must be invested in a common enterprise.
• After taking this action, investors should expect a reasonable amount of profit.
In order for the regulator to recognize the fact of concluding an investment contract and, therefore, the operation with securities, it is necessary to observe the three points listed above. Based on this, it can be concluded that, as a rule, the placement of digital assets for the most part falls under only the first two points, while compliance with the third paragraph is a decisive argument in deciding on the nature of these assets.
It is important to remember that representatives of the SEC Corporate Finance Division emphasize that this program is not a constant. This means that over time, its rules may change, taking into account the methods of using, placing and selling a digital asset. In addition, there are clauses in the framework that provide for a review of the status of the digital asset. For example, it was previously placed as a security because it met all three items of the Howey test, but for a number of reasons it may lose that status in the future.
The CoinGoCoin team reminds that you can always rely on the legal support of all your activities related to our platform. We advise users in accordance with the latest available information. We recommend to be careful about any declarations and necessarily use the help of experienced specialists to avoid undesirable negative consequences.