Cryptocurrency Industry vs. the SEC

Is the SEC fighting a losing battle by going after cryptocurrency issuers?

The SEC is declaring that the issuance of cryptocurrency constitutes the offer and sale of a security and therefore must meet Section 5 registration requirements.

Two cryptocurrency issuers the SEC is currently going after are Paragon Coin, Inc., and Airfox, arguing that they sold unregistered securities violating Section 5 of the Securities Act. What is Section 5 and what’s the impact on the cryptocurrency industry?

Section 5 of the Securities Act requires all issuers to register their non-exempt securities with the SEC. A security being a financial instrument that holds at least some monetary value and is owned in some capacity by an entity.

The cryptocurrency industry has fought back, however, stating that the SEC does not fully understand why cryptocurrency and blockchain cannot be considered securities.

They argue that cryptocurrency is not a traditional asset. It is not a property that has claim to anything. Tokens like Bitcoin, Ethereum, or Litecoin are not truly tokens but a virtual currency. Cryptocurrency is a proof that a particular set of mathematical functions were done. No one person does the mathematical function, they are done by the network. There is no legal contract between parties.

Another issue that arises is the global aspect of cryptocurrency. The SEC and the government are limited by their jurisdiction. Despite these major issues and challenges, the SEC is still going after cryptocurrency issuers.