Recently, two key officials of the Securities and Exchange Commission ("SEC") publicly expressed their views as to the status of digital assets under the federal securities laws. On June 6, SEC Chairman Jay Clayton spoke on CNBC and commented favorably regarding the potential applications of distributed ledger technology and responded to questions as to whether digital assets, such as Bitcoin, constituted securities under the federal securities laws. He was definitive that Bitcoin is not a security, but more circumspect regarding the status of other cryptocurrencies. On June 14, William Hinman, Director of the Division of Corporation Finance, in prepared remarks struck a similar tone at the Yahoo Finance All Markets Summit and articulated an analytical framework for determining whether the federal securities laws should be applied to digital assets.
Set forth below is a summary of a number of the key takeaways from their comments, bearing in mind that, as both emphasized, the determination whether a particular digital asset is a security is highly dependent upon the specific facts and circumstances presented. In addition, it is important to remember that these are not official pronouncements of the SEC, so any final rules, regulations or enforcement actions may or may not reflect these positions. However, we do think there are many helpful guideposts included in the remarks.
Additional Takeaways on the Structure of Digital Asset Offerings and SAFTs
A phased approach to capital raising activities can support the position that not all stages of a financing program should be regulated as securities transactions. The first phase may be likened to a conventional venture debt or equity raise funding the building of a blockchain network and current operations. The second phase would commence only after the blockchain network is fully operational. During this phase, the issuer offers, sells and distributes a digital asset to participants who are primarily motivated by the benefits they anticipate they will realize from the functionality of the blockchain network and the product and/or service it provides. This framework supports the position that the first phase of the financing is distinct from the second, and whereas the first phase might be regulated as a securities transaction, the second phase need not be.
The foregoing considerations were addressed by Director Hinman in his comments regarding Simple Agreements for Future Tokens ("SAFTs") in which he stated:
[T]he legal analysis must follow the economic realities of the particular facts of an offering, it may not be fruitful to debate a hypothetical structure in the abstract and nothing in these remarks is meant to opine on the legality or appropriateness of a SAFT. From the discussion in this speech, however, it is clear I believe a token once offered in a security offering can, depending on the circumstances, later be offered in a non-securities transaction. I expect that some, perhaps many, may not.
Director Hinman directed listeners to consider Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc. In Gary Plastic, a certificate of deposit ("CD"), though an exempt security under Section 2(a)(1) of the Securities Act of 1933, was nevertheless found to be subject to the securities laws when sold as part of a CD program offered by brokers promising liquidity and potential profit to retail investors. Director Hinman's reference to the Gary Plastic case reorients the application of the SEC v. W.J. Howey Co. analysis by focusing on the structure of the offer rather than the innate characteristics of the digital asset itself. The key determination in whether the underlying digital asset is classified as a security under a SAFT transaction is driven by the economic realities of the particular enterprise represented by the SAFT. Depending on the specific facts and circumstances, Director Hinman remarked that it may be possible to have a digital asset originally classified as a security, and over time, lose the characteristics of a security and be sold in a non-securities transaction.
These recent commentaries may prove to be a watershed moment in the evolution of the blockchain and digital asset industry.
Director Hinman struck a positive note, stating that: "We are happy to help promoters and their counsel work through these issues. We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use."
 Interview by Bob Pisani with Jay Clayton, Chairman, Securities and Exchange Commission, in New York, N.Y. (Jun. 6, 2018).
 William Hinman, Director, Securities and Exchange Commission, Remarks at the Yahoo Finance All Markets Summit: Crypto (Jun. 14, 2018).
 756 F.2d 230 (2d Cir. 1985) (hereinafter "Gary Plastic").
 Id. at 240.
 328 U.S. 293 (1946).