SEC's Classification of Bitcoin Mining Hosting as Securities Sparks Debate
AI Summary
According to Cointelegraph, the U.S. Securities and Exchange Commission (SEC) has raised concerns about third-party Bitcoin mining hosting services, suggesting they could be classified as securities. This stance has been met with strong opposition from industry leaders. The SEC has filed a lawsuit against Bitcoin mining company VBit and its founder, Danh Vo, in a Delaware federal court. The lawsuit accuses them of fraud and misappropriating approximately $48 million from investors between 2018 and 2022 by selling more hosting agreements than there were mining rigs available.
The SEC argues that VBit's hosting agreements qualify as investment contracts under the Howey test, which defines securities. The agency claims that investors purchased these agreements with the expectation of earning passive income, relying solely on VBit's efforts to generate profits, as they did not have control over the mining rigs they supposedly acquired. This approach by the SEC is seen as a continuation of its enforcement strategy under the Biden administration, which has been criticized by crypto advocates for broadly categorizing cryptocurrencies and related businesses under securities laws.
The SEC further alleges that VBit's operations did not adhere to industry standards, with investors unable to monitor their rigs and the company maintaining full control. VBit reportedly directed hashrate into a mining pool it controlled, a factor that contributed to the SEC's classification of VBit's hosted Bitcoin mining agreements as securities. The SEC's filing states that the fortunes of each investor were linked to the performance of the VBit mining pool, with increased investor participation purportedly enhancing the chances of earning more Bitcoins.
