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By Peter Eberle, President — Castle Funds
Bitcoin occupies a special place in the cryptocurrency universe. Launched in 2009, it was the first coin to appear in the crypto realm, bringing with it the promise of a global, decentralized, and digital cash system.
Bitcoin is also the most valuable cryptocurrency on the market. As of June 27, 2023, Bitcoin’s market cap stood at just under $600 billion — over twice the cap of its next closest competitor. The cost of a single bitcoin on that day was $30,603. It reached an all-time high in November 2021 when it hit $68,789.
Acceptance is a third factor that sets Bitcoin apart from the tens of thousands of other cryptocurrencies that have followed it. A growing number of companies around the world, including Microsoft, PayPal, and Shopify accept Bitcoin as a means of payment. Since September 2021, Bitcoin has been legal tender in El Salvador, meaning all businesses in the country must accept it in exchange for goods and services.
While each of these factors contributes to Bitcoin’s uniqueness, none represents the crucial reason why it stands apart from all other cryptocurrencies. That is found in the way in which key US regulators view it.
The evolution of regulatory oversight in the crypto space
The birth of Bitcoin did not cause a blip on regulators’ radar. Many experts feel the lack of interest was caused by the belief that crypto was a digital fad that would quickly pass. Within five years, however, the number of coins in the crypto universe had grown to over 500.
The growth of crypto led regulators in the US to issue their first notable statement in 2014, guidelines issued by the Internal Revenue Service on crypto taxation. Essentially, the guidelines stated that crypto should be viewed as property, rather than currency, for tax purposes.
In 2017, the Securities and Exchange Commission (SEC) got involved in the world of crypto when it began regulating initial coin offerings (ICOs). At that time, the SEC warned those involved with ICOs that digital assets that had the characteristics of a security, such as ownership rights or an income stream, were required to comply with US securities laws.
In the years that followed, the SEC became more interested in and more vocal about what was happening in the crypto space. In September 2022, it announced its plans to establish an “Office of Crypto Assets” that would focus on reviewing filings involving crypto assets.
In June 2023, the SEC took a bold step when it filed lawsuits against Binance and Coinbase, the two largest crypto exchanges. Among the allegations contained in the suits are claims that some of the cryptocurrencies offered by the exchanges should be considered unregistered securities. The SEC lawsuits rattled the crypto community, inspiring investors to withdraw approximately $4 billion in deposits from the exchanges.
What the SEC crypto lawsuits say about Bitcoin
The SEC lawsuits make an interesting statement about the way in which the regulator views Bitcoin. While the lawsuits list a number of specific tokens that the SEC argues should be considered securities, including Binance’s BNB and Cardano’s ADA, they do not take aim at Bitcoin. That decision was made despite the fact that Bitcoin is one of the most active cryptocurrencies on the exchanges.
The lawsuit is yet another in a list of statements that the SEC has issued making the case that Bitcoin is not a security — that position was expressed as early as 2018 by then-SEC Chair Jay Clayton. A video from 2018 that has recently re-emerged on social media shows current SEC Chair Gary Gensler making the same assertion.
Why Bitcoin is not considered a security
The way that Bitcoin was developed represents the key reason the SEC does not consider it a security. Bitcoin came about via the mining activity on its network. There was never a public offering for it where retail investors exchanged money with a centralized organization in expectation of a profit or return.
Unlike many cryptocurrencies — including those targeted by the SEC lawsuits – Bitcoin did not emerge thanks to someone selling an initial offering of tokens. That type of sale is a key factor that classifies other tokens as a security. Just like securities, the tokens involved are sold to raise money for a central organization in a type of unregistered share offering.
Those who fear the impact that the recent activity by the SEC will have on the crypto market at large should find comfort in the fact that it remains silent regarding Bitcoin. It provides clear affirmation that Bitcoin is not a security and won’t be regarded as such by the SEC.
By staying out from under the purview of the SEC, Bitcoin should be able to continue to enjoy the high level of accessibility that differentiates it from most crypto tokens. Whether or not that adoption will be threatened by regulations issued by some other US agency remains to be seen.
Author Bio
— Peter Eberle is the President and Chief Investment Officer of Castle Funds. Peter has extensive experience in portfolio management, derivatives trading, and risk management.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.