SEC Says Hosted Bitcoin Miners Could Trigger Securities Laws

“Investors who purchased Hosting Agreements did so with the expectation of earning passive income and relied exclusively on VBits efforts to earn a profit as the investors did not possess, control, or have agency over the mining rigs they purportedly purchased,” the agency claimed.

The SECs claim is a rare carryover from how the agency approached enforcement under the Biden administration, which crypto backers have said lumped most cryptocurrencies and businesses under securities laws.

VBit didnt follow industry standards, SEC alleges

The SEC claimed that Vos Bitcoin mining hosting operation fell far short of standard industry practices, with investors unable to track their rigs, and the company retaining full operational control.

VBit also directed hashrate into a mining pool under its control, which appeared to be a defining factor in the SEC‘s classification of VBit’s hosted Bitcoin mining agreement as a security.

In the filing, the SEC said: “The fortunes of each investor were purportedly tied to the fortunes of other investors because every investors chance of earning a profit was tied directly to the performance of the greater VBit mining pool, and the more investors recruited into the mining pool, the greater the chances of earning more Bitcoins.”

SEC‘s view shouldn’t impact hosted Bitcoin mining industry

Mitchell Askew, the head of Blockware Intelligence, told Cointelegraph that pooling hashrate isnt industry practice for hosted Bitcoin mining service providers.

“Hosted Bitcoin mining simply means a client purchases a computer and electricity,” he said. “Theres no pooling of capital, no profit-sharing, and no reliance on a promoter to generate returns. Under the Howey test, that is very clearly not a security.”

“I dont think this affects the hosted mining industry at all. Legitimate hosted mining has no resemblance to an investment contract, and this theory has no legs to stand on.”

The SEC did not immediately respond to a request for comment.

The SECs view that hosted Bitcoin mining can constitute a security is one of the most notable classifications under the Trump administration, which has positioned the SEC to be more supportive of the industry.

Several high-profile crypto investigations that the agency started under the Biden administration have since been dropped, however, many fraud-related lawsuits are ongoing.