June 18, 2024

SEC: Bitcoin is not a security

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According to an October 1, 2019 letter issued by the SEC's Division of Investment Management, Bitcoin is not a security.

Crypto fund Cipher Technologies filed with the SECApplication to register as a closed-end fund and an “investment company” under the Investment Company Act of 1940. In the filing, Cipher management took the position that Bitcoin &#8211; this is a security. However, the SEC staff does not agree with Cipher's arguments.

According to the SEC letter:

We do not believe that current customersBitcoins rely on the core management and entrepreneurial efforts of others to generate profits. Accordingly, because Cipher intends to invest substantially all of its assets in Bitcoin as they are currently structured, it does not meet the definition of an “investment company” under the Investment Company Act.

Moreover, if we consider Bitcoin as valuablepaper, many new problems would arise related to the registration of the asset. It also noted that Cipher did not address the “substantial legal and investor protection issues, particularly regarding valuation, custody and potential manipulation of the Bitcoin market” that were raised earlier this year. For these reasons, the staff concluded that Cipher did not properly approach the registration of an investment company under the Act relied upon.

Despite the fact that the letter is notregulations, it represents a public acknowledgment that the SEC does not consider Bitcoin to be a security. In addition, for guidance, the SEC is relying on a background document issued earlier this year that provides detailed asset classification.