The U.S. Securities and Exchange Commission’s chairman has seconded a colleague’s analysis that found the world’s second-largest cryptocurrency likely does not qualify as a security.

Last year, SEC Director of Corporation Finance William Hinman said during a speech that ethereum, the No. 2 coin by market cap, did not exhibit the properties of a security. At the time, he explained that he did not see a central group as being responsible for the cryptocurrency.

Congressman Ted Budd – with industry advocacy group Coin Center – asked for clarification on whether SEC Chairman Jay Clayton agreed with Hinman’s remarks. The regulator has now responded by saying he agrees “that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument.”

A cryptocurrency may be sold as a security when it is first launched if it meets the definition of an investment contract, but the digital asset may later be sold or offered to consumers without being investments, Clayton wrote in a letter dated March 7, adding:

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

The letter did not mention ethereum by name, however.

Past statements

Clayton’s letter echoes comments he made at CoinDesk’s Consensus: Invest last year, where he likened digital assets to tickets for a new play. At the time, Clayton suggested that a group of investors might be promised “a suite of tickets” in return for funding the play, which would qualify these tickets as securities.

However, if at a later date, tickets are only sold to give each theatergoer a chance to see the play, “that’s decentralized,” he added.

This aspect of decentralization is important, according to Clayton. He’d earlier touched on the point while discussing bitcoin, noting that “generally an asset like bitcoin, where [it’s] decentralized,” does not fit within a securities designation.

“No one is creating it for their own … control of bitcoin, it’s designed to be a payment system replacement for sovereign currencies,” he said. “We’ve determined that that doesn’t have the attributes of a security … as far as I’m concerned, that’s designed to be akin to the dollar, the yen, the euro … and it operates that way. People who purchase it are expecting it to operate that way.”

Jay Clayton image via CoinDesk archives