TheCorporateCounsel.net

Last week, Corp Fin issued a statement clarifying the Staff’s position that certain crypto-related mining activities do not involve the offer or sale of securities for purposes of the federal securities laws. This statement descends almost immediately into jargon that’s pretty incomprehensible to those of us who aren’t among the crypto cognoscenti (or at least to me). Fortunately Mayer Brown posted a blog about the statement that is a little easier to understand.  This excerpt summarizes the scope of the Staff’s statement:

The statement focuses on the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless, proof-of-work (“PoW”) network, such as Bitcoin and Dogecoin, and are used to participate in, and/or are earned for participating in, such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the network’s technological operation and security (such crypto assets, “Covered Crypto Assets” and, such mining activities on a PoW network, “Protocol Mining”). Importantly, the statement is narrowly tailored and only addresses certain types of mining activities. The statement is not dispositive as to whether any specific mining activity involves the offer or sale of a security, which the Division states is a fact-specific inquiry.

The Staff’s position is based on its conclusion that the Covered Crypto Assets aren’t securities under the Howey test, and is limited to (1) mining Covered Crypto Assets on a PoW network; and (2) the roles of mining pools (which involve miners pooling computational resources to increase their chance of success) and pool operators involved in the Protocol Mining process.

Commissioner Crenshaw issued a dissenting statement in which she criticized the logic underlying Corp Fin’s statement and contended that it doesn’t really move the needle in terms of “clarifying” its position, since it still requires everyone to look to the specific facts and circumstances of the particular situation in order to determine whether a security is involved in mining activities.

– John Jenkins