The US Securities and Exchange Commission shed significant light on the status of digital assets when it decided that the two most popular cryptocurrencies, bitcoin and ether, did not meet the definition what it considers a security.

The tipping point in the regulator’s decision came when it examined how each cryptocurrency is sold and the purchaser’s reasonable expectations, according to William Hinman, director of the Division of Corporate Finance at the SEC and who spoke at the Yahoo Finance All Market Summit on June 14.

Well, the #SEC has clarified that both #Bitcoin and #ether are not #securities. Just 1,627 to go! https://t.co/g9QKhmqyip via @BIUK_Finance #ethereum $ETH #crypto #cryptocurrencynews

— David G Zeiler (@DavidGZeiler) June 15, 2018

“The digital asset itself is simply, code,” he explained. “But the way it is sold- as part of an investment; to non-users; by promoters to develop the enterprise- can be, in that context, most often is, a security because it evidences an investment contract.”

Hinman likened the digital to a housing unit, which the SEC typically does not consider a security. However, if the purchaser has a reasonable expectation of profits since the unit is sold with a management contract or other services, the regulator could consider it a security.

On the other hand, if the network on which a coin or token operates is decentralized sufficiently where purchasers no longer reasonably expect a person or group to carry out managerial or entrepreneurial efforts, the SEC may not see it as an investment contract.

“but tokens based on Ether can be”

#SEC says #Ether isn’t a #security,

but tokens based on Ether can be https://t.co/Jdu7jKxxNX #fintech #blockchain #digitalcurrency #ethereum @jshieber @techcrunch #regulation pic.twitter.com/auVivscLSw

— Spiros Margaris (@SpirosMargaris) June 15, 2018

“Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value,” said Hinman putting ether into a similar bucket.

He also warned the audience that analyzing whether something was a security is not static nor strictly inheres to the instrument.

“Even digital assets with utility that function solely as a means of exchange in a decentralized network could be packed and sold as an investment strategy that can be a strategy,” he said. “If a promoter were to place Bitcoin in a fund or trust and sell interests, it would create a new security.”