YEREVAN (CoinChapter.com) — The US Securities and Exchange Commission (SEC) could classify Bitcoin (BTC) as a security. Such a move, according to American investment giant BlackRock, could impact the cryptocurrency market significantly. Such concerns from the world’s largest asset management are again throwing open speculations about the status of non-Proof of Stake (PoS) coins. Are Proof of Work (PoW) coins like Bitcoin and Litecoin (LTC) securities?
BlackRock raises concerns in its ETF filing update
In a recent update filing of its spot Bitcoin Exchange Traded Fund (ETF), BlackRock warned of the devastating impact of the SEC deeming Bitcoin as a security.
According to the company, such a move could cause the leading cryptocurrency to face grave challenges in trading within the United States. Furthermore, this could create a large regulatory divide between Bitcoin and other non-security digital assets.
“Any enforcement action by the SEC or a state securities regulator asserting that bitcoin is a security, or a court decision, to that effect would be expected to have an immediate material adverse impact on the trading value of Bitcoin, as well as the Shares,”
BlackRock said, referring to the spot Bitcoin ETF shares.
The asset management firm is one of the largest to have applied with the SEC for a license to trade spot Bitcoin ETFs.
Underlining the gravity of the situation, the company highlighted the SEC’s lawsuit against Ripple. The legal action had a devastating effect on XRP’s market capitalization, which saw a dramatic decrease from over $100 billion to less than $10 billion.
Such concerns, however, are not limited to Bitcoin. The classification of cryptocurrencies as securities will impact the broader crypto industry. Therefore, the SEC chief Gary Gensler’s approach and his organization’s stance are a point of concern.
Market leaders, Bitcoin (BTC) and Ethereum (ETH) have so far avoided being classified as securities. Will that change in the future?
SEC’s stance on Bitcoin as a security
Cryptocurrencies like Bitcoin (BTC) and Litecoin (LTC), among others, use Proof of Work (PoW) for their consensus mechanism. These have so far not been classified as securities by the SEC.
In the US, the agency tasked with determining if a financial instrument is a security or not is the Securities and Exchange Commission (SEC). The agency uses the Howey Test, derived from the Supreme Court case SEC v. W.J. Howey Co, for such classification.
Bitcoin and other cryptos, like Litecoin (LTC), are decentralized. They run independently of a central authority for their operation or management. As such, the value derived from them does not stem from a promise of profit. Neither do the managerial efforts of a third party play a role, which is a key criterion in the Howey Test.
As a result, the regulatory agencies do not consider them as securities.
In 2018, Gary Gensler confirmed this sentiment. During his presentation, the SEC chief classified several cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, as “not securities.”
“Bitcoin, Ether, Litecoin, Bitcoin Cash,. Why did I name those four? They’re not securities,”
Gensler declared.
Considering that Gensler has not issued a statement contradicting this, neither Bitcoin nor Litecoin, both PoW coins, are securities.
However, should the SEC now change its stance, as BlackRock has warned, the markets will not respond favorably.
