SEC Flags Bitcoin Miner Hosting Services Under Securities Laws

The US Securities and Exchange Commission has flagged third-party Bitcoin mining hosting services as potentially subject to securities laws, a position highlighted in a lawsuit against the Bitcoin mining company VBit and its founder, Danh Vo.

The SEC accused VBit of fraud, alleging the misappropriation of approximately $48 million in investor funds by selling hosting agreements exceeding the number of available mining rigs. The SEC contended that these agreements qualify as investment contracts under the Howey test, as investors expected passive income and relied solely on VBit's efforts to generate profits.

The lawsuit indicated that VBit's practices fell short of industry standards, with investors unable to track their mining rigs and VBit controlling the operational aspects. Industry expert Mitchell Askew argued that traditional hosted Bitcoin mining does not resemble an investment contract, asserting that pooling hashrate is not standard practice in hosted mining services.

This move by the SEC marks a significant regulatory tightening for cryptocurrency businesses, reflecting an ongoing shift in enforcement under the current administration. The SEC's classification of hosted Bitcoin mining as a security diverges from earlier positions and may set a precedent impacting the operational landscape for mining companies moving forward.