Key Points

  • Hinman documents were released on June 13 showing contempt from SEC to smother the crypto industry
  • EX SEC Director Bill Hinman said that some crypto assets could evolve into commodities
  • The information recorded in Hinman documents calls the industry irrelevant sparking outrage from law practitioners and the crypto industry 
  • SEC regarded as the wrong regulator for the crypto industry

What are Hinman documents?

Hinman documents are internal messages from regulators tied to SEC on ex-director Bill Hinman’s infamous 2018 speech. The documents include emails, his speech and messages pointing to discussions about the crypto industry, regulation approaches and its relevancy in the U.S.

What are the contents of Hinman documents?

It’s been around five years since Bill Hinman gave a speech about the crypto industry and SEC regulation. He touched on SEC’s lawsuit against Ripple which was not very well received by the crypto community. As such, the SEC conducted follow-ups behind the scenes and wanted Hinman documents hidden from the public.

However, on May 16, 2023, a US Judge in the case against Ripple ordered the Hinman documents to be released to the public.

In Hinman’s speech, he claimed that the fact that some tokens achieve decentralization as they gain users makes them commodities and no longer securities. As such, he deemed it, not a fit for the SEC to “register and regulate” such assets. 

An internal comment regarding his speech reads

“The fact that tokens on a sufficiently decentralized network are no longer securities- and no longer required to register with all the benefits to investors of registrations- seems to point out to what might be considered the “regulatory gap” that exists in this space.” 

The comment continues “In other words, this speech acknowledged that there is an “other” category-its not a security because there is no controlling group {At least in Howey sense} yet, like many other things (medication, credit cards) there may need be a regulation to control customer purchases”

This comment acknowledges the fact that tokens on sufficiently decentralized networks are not securities as they do not satisfy Howeys factors.

The unsealed Hinman documents show that in this sense, truly decentralized crypto assets not satisfying Howeys factors, make the SEC liable for ignoring multiple warnings about poor regulation with no basis in law. As such, their actions are just but unlawful and here to create confusion showing greed and ill intentions by the regulator.

 When Hinman served as the Head of SEC’s Corp Fin, he gave his infamous speech declaring that its ‘common sense’ when crypto assets attain sufficient decentralization it transitions into being a commodity as there no longer is a controlling group. Though he claimed that his speech was his own opinion, the SEC Chair of the time, Jay Clayton publicly pointed to the speech.

The speech also remained on the regulator’s website which shows that it acknowledges its contents. As such, the SEC has continued to pressure crypto assets that are already decentralized and use them to “scare” the markets. 

Even with a change in regime in 2021, the SEC has continued to push its agendas of crypto “having no relevancy in the U.S.” as current Chair Gary Gensler has continually said. Gary Gensler has been in the limelight for trying to smother crypto in favor of a digital dollar.

In an interview with CNBC after suing Binance and Coinbase in the US, Gary Gensler said that the U.S. doesn’t really need any more digital currencies as the dollar is already there. In his own words, he said 

“We don’t need more digital currency… we already have digital currency, it’s called the U.S. dollar,” Gensler said. “We have not seen, over the centuries, that economies and the public need more than one way to move value.”

What Senior SEC officials said to Hinman as he drafted his speech

Upon the unsealing of Hinman documents, information has surfaced that several senior SEC officials talked to Bill Hinman as he prepared his speech. The Head of Trading and Markets (T&M) commented saying that some of his deliberations were wrong but he ignored

“Because the list of factors is so extensive – and appears to include things that go beyond the typical Howey analysis – we have concerns this might lead to greater confusion on what is a security.”

T&M directly asked Hinman to tie his new factors as “more closely and explicitly to the Howey analysis.” As usual, Hinman ignored the warnings.

The Office of General Counsel (OGC) and T&M called a factor invented by Hinman irrelevant and uncalled for. However, Hinman went ahead and kept it in the speech. 

T&M and OGC noticed that Hinman has skipped over the threshold jurisdiction question of “whether a digital asset meets the legal standards of a security.” However, Hinman as usual skipped it to ask if SEC oversight on the asset class could be beneficial, completely disregarding the present “regulatory gap.”

On June 4, 2018, Hinman wrote that he did not see the need to regulate ETH as a security and was on the verge of calling Vitalik Buterin to confirm their standing. 

Regarding the mention of Ether in the speech, OGC warned that it would be difficult for the U.S. SEC to touch on the asset in the future. Now the current SEC chairman, Gary Gensler has hinted at ETH being a security as OFAC threatened to introduce censorship on the chain. He did this despite knowing the controversies behind Hinman documents and his agency being reckless in the past. As a result, the markets were affected resulting in claims of market manipulation being in play. 

Though ETH Chain censorship hasn’t happened, something more controversial has, the SEC has charged crypto stakers like Coinbase and Kraken in the U.S. for facilitating the staking of ETH and other crypto tokens. It even asked Kraken to close down its staking operations in the country on top of a $30M fine earlier this year.

Is it market manipulation or hate? One thing is SEC is not the best regulator for the crypto industry

The deliberations from Hinman documents show that poor leadership has led SEC regulation down this dark alley. As such, more light should be shed on the SEC and an investigation against all those who backed Hinman including the ones who have been using flawed regulatory approaches on the crypto industry. 

The likes of Gary Gensler ought to be answerable for their unlawful extortion of monies and disregard shown in Hinman documents by twisting decentralized assets to fit their narrative. Wait, that’s possible! U.S. lawmakers have tabled a bill to see the SEC restructured and Gary Gensler held accountable including his firing.

The crypto community has also been pushing for him to be fired as well. The release of Hinman documents and the current arrogance shown by chair Gary Gensler including contempt of law (lied that he has never been a crypto advisor yet he wanted to join Binance in a similar capacity in 2019) shows that the SEC has a hidden narrative behind their regulatory approach and their will to let crypto thrive in the U.S. 

Could we be seeing market manipulation or is it pure hatred that is pushing SEC to smother the crypto industry when other regions like the Eurozone, Russia, UAE and Hong Kong are slowly coming to terms with the innovation? You tell me! 

But what is evident is that SEC has no regard for playing fair in crypto regulation as the head already “does not see the need for any more crypo assets in the U.S.” forgetting that it’s not up to him to see the need for it. It’s up to citizens to have financial freedom and regulators stepping up to match their needs by providing security in their investments but not dictating what they go for!

Where to find raw Hinman documents?

View all documents here

Warning: This is an opinion piece and does not in any way show the stand of Fintech Express regarding SEC or any other crypto regulatory approaches. Read and research more to make your own deliberations.