Some Cryptocurrencies Can Be Securities, US Court Rules

A federal court in New York ruled in one particular case that certain cryptocurrencies can be considered securities.

The United States’ treatment of cryptocurrencies just shifted slightly after a New York federal judge came up with a ruling establishing a precedent that would treat certain cryptocurrencies as securities, Reuters reports.

This came after district judge Raymond Dearie gave the go-ahead for federal prosecutors to continue their work on the case of a man named Maksim Zaslavskiy, who was arrested on charges of fraud involving two cryptocurrencies. The legal argument for this pursuit involved a violation of the Securities Exchange Act of 1934.

The prosecution argues that Zaslavskiy defrauded investors of $300,000 with two digital coins - REcoin, which, he told investors, was backed by real estate, and Diamond, backed supposedly, as the name implies, by diamonds.

The argument presented by the prosecution was that they could find no evidence that Zaslavskiy’s statements are true, therefore constituting fraud.

The man’s lawyers attempted to dismiss the case by saying that these coins were nonetheless currencies, and could not be treated as securities, removing them from the purview of the Securities Exchange Act. However, Dearie said that securities law could be interpreted “flexibly”, pointing to previous statements by the US Securities and Exchange Commission (SEC) that say that some cryptocurrencies are indeed securities.

Since there is no legal jurisprudence offering guidance on this particular subject, judge Dearie is on his own, establishing the legal precedent by which future court cases may be interpreted.

Such a decision was expected, as it would be difficult to defend the claim that no cryptocurrencies can be securities. At the very least, the SEC has already made its decision on both Bitcoin (BTC) and Ethereum (ETH), saying that they are not going to be regulated as securities.

Nonetheless, coins within the Ethereum blockchain such as the ERC20/223 tokens distributed by initial coin offerings (ICOs) may still fall within the SEC’s lens as they have in the past.

The next step in the process would be to delineate exactly what transforms a cryptocurrency into a security. This will require some time and debate, but it is bound to happen over the next few years.