SEC Doesn’t Rule out That PoW Mining Constitutes a Securities Sale, Commissioner Crenshaw Says

According to one commissioner, the Securities and Exchange Commission's statement yesterday that proof-of-work mining is not a securities sale under its jurisdiction is not as airtight as it seems.

Commissioner Caroline Crenshaw, the agency’s lone Democratic appointee, argued that the fine print of the SEC’s March 20 statement on the subject has some loopholes you could drive a truck through.

The SEC’s statement that “participants in Mining Activities do not need to register transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these Mining Activities" is the latest in a series of pro-crypto actions taken by the Commission since the departure of anti-crypto former Chairman Gary Gensler.

Buried in the Footnotes

But Crenshaw pointed out that “buried in the footnotes, the statement reveals its true limitation: one actually would have to conduct a Howey analysis to know if a specific mining arrangement constitutes an investment contract.”

As a result, the SEC’s statement leaves the industry exactly where it started, she argues, “with a facts and circumstances application of Howey.”

The test of whether or not something is a security is based on a four-part test devised by the Supreme Court and known as the Howey test.

It says that a security involves (1) the investment of money in a (2) common enterprise with the (3) expectation of profit (4) derived from the efforts of others.

Unspoken in Crenshaw’s statement is the reality that the current SEC is unlikely to go back on any of its own statements or run a Howey test on PoW miners without exceptional circumstances.

Crypto-Friendly Shift

The five-person Commission has two vacant seats, with the other two filled by active supporters of cryptocurrencies, Acting Chairman Paul Uyeda and Hester Peirce, also known as “Crypto Mom” for her early championship of the industry in the SEC.

Since Gensler’s departure, the SEC has taken a number of pro-crypto actions, including dropping lawsuits against prominent exchanges Coinbase and Kraken that accused them of unregistered securities sales.

This week it dropped its appeal of a decision holding that Ripple’s sale of digital assets to the public does not constitute a securities sale, ending its longest-running battle with the industry. On March 7, it issued a statement saying memecoins are generally not securities, and in January allowed banks to custody cryptocurrencies.

Assumptions and Loopholes

Crenshaw also said the SEC’s statement that miners do not participate in mining in order to profit from the efforts of others is an assumption that could be challenged.

“If you start with an assumption that mining is not undertaken with the expectation of profits based on the efforts of others, you will necessarily conclude that it does not involve such an expectation and is therefore not a security,” Crenshaw said.

Additionally, she notes that the SEC’s statement addressed “PoW (proof of work) generally” and not necessarily all variations.

“So, this non-binding statement generally applies to mining. Except when it doesn’t,” she said.