On Sunday (July 31), Russian-Canadian programmer Vitalik Buterin, who is the creator of Ethereum, called Michael Saylor (co-founder, chairman and CEO of MicroStrategy Inc.) for his recent comments about US securities laws and their application. to the crypto room.
It’s worth remembering that on August 11, 2020, MicroStrategy announced via a press release that it had “purchased 21,454 bitcoins for a total purchase price of $250 million” to use as a “primary treasury reserve asset.”
Saylor said at the time:
“Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe create long-term risks to our financial program – risks that should be proactively managed.“
Since then, MicroStrategy has continued to accumulate Bitcoin and its CEO has become one of Bitcoin’s most vocal advocates. MicroStrategy’s latest $BTC purchase, which Saylor tweeted about on June 29, means the firm now holds around 129,699 bitcoins, which were “acquired for ~$3.98 billion at an average price of ~$30,664 per bitcoin.”
On July 12, during an appearance on the YouTube series “Not Investment Advice,” Saylor said that the foundation of U.S. securities laws was the Bible (specifically, the Old Testament):
“Most of the crypto industry, it just went, quickly broke things, lacked adult supervision. Very entrepreneurial and it works until it doesn’t work anymore. It’s pretty clear that it doesn’t work anymore. And for the next decade, you have to have lawyers and accountants. I know people are saying “well I guess Celsius should have disclosed what they did”. Do you know who reveals what they do? Listed companies…
“Just remember: the foundation of securities laws is biblical; they go back thousands of years, I mean, Hammurabi’s code even. The basis of securities legislation is “you shall not lie, cheat or steal”. That is the basis of the law. So saying “these are antiquated laws from 1933 that don’t apply to crypto” is kind of a dead on arrival argument. The law is “don’t lie, cheat or steal”. It’s just instantiated in different years and different places. So the future of industry must be based on an ethically sound basis, a technically sound basis and an economically sound basis.
“And as you can see, I believe Bitcoin is financially, technically and ethically sound. You have a million reasons for that. We can talk about it for thousands of hours. If you want to build a business in this industry, you need to be inspired by these three principles.
“And the easy thing to do is to use Bitcoin as a token and then build on top of the monetary protocol and on top of the monetary asset, but if you’re not going to do that, you definitely have to think long and hard about the economic, ethical and the technical implications of what you are doing.“
This led Buterin to wonder aloud earlier today why Bitcoin maximalists like to choose as heroes “total clowns” like Michael Syalor:
Anyway, according to a report from CoinDesk, on Wednesday (July 27), Saylor, who is a self-confessed Bitcoin maximalist, spoke at a two-day crypto conference in Turkey – “Blockchain Economy Istanbul” – where he shared his thoughts on Ethereum.
The CoinDesk report mentioned that Saylor had “noted that he was speaking as an institutional investor, and in that regard one would “need to wait until the protocol is completed.” Apparently, he “pointed out that Ethereum founder Vitalik Buterin said in a speech last week that Ethereum was 40% complete and had laid out a three- to four-year roadmap, meaning “the protocol does not appear to be complete or stable for another 36 months.”
Regarding the solidity of Ethereum, Saylor said:
“‘Technically sound means I need to see the protocol function of that thing in about five to ten years. So we don’t know that either. Right? Because if you hard fork and change it, every time you do a big upgrade you introduce new attack surfaces…
“‘Ethically sound means I need to know that no one can change [the protocol], which includes Vitalik. I need to know that no one in the Ethereum foundation, no individual can change the protocol, because if they could change the protocol, it makes it a security, and if it makes it a security, then it’s not going to be global money.“
According to a report by The Daily Hodl, on July 7, during an interview with the crypto market commentary show “Altcoin Daily”, the MicroStrategy CEO stated that $ETH is a security. Saylor was asked by the host to give his view on Bitcoin and Ethereum being viewed as commodities by certain US lawmakers, as well as a few officials from the Securities and Exchange Commission (SEC) and the Commodities and the Commodities Futures Trading Commission (CFTC).
Here are the reasons that Saylor gave for believing that Ethereum is a security:
“I think it’s pretty obvious that it’s a security. It was issued via an ICO [initial coin launch]. It is a management team. It was a pre-mine. It’s a hard fork. There are continuous hard forks… For it to be a commodity, there can’t be an issuer, and the truth is, you can’t really make decisions. One of the fundamental insights of the crypto industry is that you can change it is what makes it a security...
“If you look at most of these cryptos, where they have hard fork after hard fork after hard fork, the problem with a hard fork is changing the protocol means a development team makes a decision, and if you can change the protocol in a material way, you can change the monetary protocol. A hard fork can change the issuance pattern, or it can change the value of something. So it constitutes an investment contract under the securities laws.“
On June 14, 2018, William Hinman, then Director of the Division of Corporation Finance at the SEC, spoke at Yahoo Finance’s one-day event “All Markets Summit: Crypto” in San Francisco, California. The talk was about how the SEC plans to use the “Howey test” to determine whether a digital asset should be considered a security or not. The only two cryptocurrencies Hinman mentioned by name were Bitcoin (BTC) and Ether (ETH), neither of which should be considered securities:
“And so, when I look at Bitcoin today, I don’t see a central third party whose efforts are a determining factor in the enterprise. The network on which Bitcoin operates is operational and appears to have been decentralized for some time, perhaps from its inception. Applying the disclosure regime of the federal securities laws to the offering and resale of Bitcoin appears to provide little value.
“And aside from the fundraising that came with the creation of Ether, based on my understanding of Ether’s current state, the Ethereum network and its decentralized structure, the current supply and sale of Ether are not securities transactions. And, as with Bitcoin, there appears to be little value in applying the disclosure regime of the federal securities laws to current transactions in Ether.“