Isle of Man Says Bitcoin, Ethereum, Are Not Securities

The Isle of Man has published a document defining cryptocurrency.

Crypto assets can be electronic money, securities, or unregulated

Ether and Bitcoin do not appear to be securities under this scheme, although they are not mentioned in the document by name.

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The Isle of Man, an autonomous dependency of the British Crown, has released a document explaining how it will define cryptocurrencies like Bitcoin.

Specifically, the country’s Financial Services Authority (FSA) classifies cryptocurrencies based on their function. Sandwiched between the UK and Ireland, the Isle of Man is a self-governing British island with a parliament and financial overseer.

On October 14, 2020, the FSA announced a document intended to guide businesses interacting with cryptocurrency.

The document appears to be crypto friendly, providing a framework for entrepreneurs to work with crypto assets.

The authorities created the guidelines in a collaborative effort. The Digital Isle of Man, an executive agency concerned with technology on the island, partnered with the FSA to create the document. This was to ensure that the document remained “technologically neutral”.

The bottom line is that different crypto assets would be legally defined by what they do, rather than how they are created:

The guide is intended for those who plan to sell, issue, manage or administer crypto assets / tokens (in this “tokens” guide), and illustrates some token related activities, undertaken using distributed ledger technology („DLT“), may have regulatory implications.

Bitcoin and categorical imperatives

Fortunately, the financial authority has presented the different categories of tokens in a handy table:

Basically, tokens can be classified as investments, electronic money, or unregulated. The categorization is mainly based on the function of the token. The FSA document further breaks down the groups.

Security tokens are therefore those that function like stocks, bonds, units of a collective investment or derivatives. Under this system, bitcoins (electronic money or store of value) and ethers (money for a virtual machine) do not appear to be securities.

However, investments that function like securities or electronic money will be regulated by the FSA. However, a license may not be required. Securities that offer some form of capital growth, in other words, investments, require a license.