Ethereum is about to get a verdict from the federal officials that oversee it QuoteCoin
New York City: The SEC is planning global action against Ethereum. SEC officials planning to ban Ethereum? Given authorities’ threats, including SEC Chairman Gary Gensler, it’s plausible.
In September, the agency turned crypto-regulatory. First, during The SEC Speaks, officials committed to continue enforcement proceedings and asked market participants to register their goods and services. Gensler proposed crypto intermediaries split up into distinct legal organizations and register each of their roles to reduce conflicts of interest and boost investor protection.
The SEC’s Division of Corporation Finance will create an Office of Crypto Assets and an Office of Industrial Applications and Services this autumn to help register crypto market players. Gensler spoke before multiple Senate Committees on proposed measures to revamp crypto regulation, where he said virtually all digital assets are securities and should be registered with the SEC.
The SEC took aim at Ethereum, perhaps overturning a years-long détente that started when an official said Ether (ETH) and Bitcoin (BTC) were not securities. Gensler said before the Senate Banking Committee that Ethereum’s switch to proof-of-stake (PoS) from proof-of-work might have placed it under SEC jurisdiction since staking coins “anticipates gains based on the labor of others.”
In a lawsuit against a token promoter, the SEC stated that all Ethereum blockchain transactions should come under its jurisdiction since more Ethereum nodes are in the U.S. Recent SEC statements on Ethereum look to be overreach and saber-rattling to induce industry registration.
In 2018, SEC Director of Corporation Finance William Hinman said Bitcoin and Ether weren’t securities. This was due to Ethereum’s decentralization and the distinction between cryptocurrencies and digital tokens, which are venture-specific assets.
Ethereum’s Merge to PoS has muddied those waters, with the SEC suggesting that Ether could now be a security under the Howey Test (an asset is a security if it is 1) an investment of money, 2) in a common enterprise, 3) with a reasonable expectation of profits, and 4) derived from the efforts of others). How the Merge transformed Ethereum’s decentralized character and purpose to make it a security is unclear (it’s still more like Bitcoin than digital tokens).
It’s closer to matching the Howey characteristics, particularly with crypto-lending-like qualities that the SEC says might constitute a product a security (see BlockFi action). PoS differs from crypto-lending systems, where tokens are staked and interest is generated by the loan firm, not the stakers. Considering what the Ethereum blockchain is used for (smart contracts) and how its currency are generated, it appears unlikely that Ether is a security.
Second, the SEC’s claim that Ethereum blockchain transactions are subject to U.S. jurisdiction because more nodes are in the U.S. than any other nation would greatly broaden the SEC’s reach. The SEC might establish jurisdiction over an Ethereum-based token produced in Germany and marketed only to Germans, since the cluster of Ethereum nodes in the U.S. indicates the transactions essentially happened in the U.S. A legal challenge seems improbable.
Does the SEC’s tough stance portend enforcement measures against Ethereum (who would they sue?) or international actors for foreign activity on Ethereum? This is presumably a negotiation strategy to intimidate the sector into willingly accepting SEC jurisdiction. Come in and register, basically. If Ethereum is at danger of being declared a security/exchange, then so are all other tokens and decentralized financial systems, save Bitcoin (for now).
