Are regulators with the US Securities and Exchange Commission ready to withdraw Ethereum? Given the saber-rattling from officials — including Securities and Exchange Commission Chairman Gary Gensler — it certainly seems possible.
The agency went to a cryptocurrency regulatory festival in September. First, at the annual SEC Speaks conference, officials pledged to continue taking enforcement action and encouraged market participants to come and register their products and services. Gensler suggested that crypto brokers should be divided into separate legal entities and each of their functions – exchange, broker, dealer, custodian, etc. – should be registered to reduce conflicts of interest and improve investor protection.
Then there was the announcement that the SEC’s Institutional Finance division plans to add an Office of Crypto Asset and an Office of Industrial Applications and Services to its disclosure review program this fall to help enroll crypto market participants. Then there was testimony before various Senate committees regarding proposed legislation to reform crypto regulation, with Gensler repeating his belief that nearly all digital assets are securities, implying his opinion that such digital assets and related brokers should register with the Securities and Exchange Commission. .
But perhaps the most offensive shot came when the SEC targeted Ethereum, perhaps reversing the years-long détente that began when a former SEC official stated that Ether (ETH), along with Bitcoin (BTC), was no security. Testifying before the Senate Banking Committee, Gensler suggested that Ethereum’s move to Proof of Stake (PoS) from Proof of Work would have brought Ethereum under the jurisdiction of the SEC because, by placing the coins, “public investment [is] anticipating profits based on the efforts of the SEC.” others”.
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Later, in a complaint against the token promoter, the Securities and Exchange Commission (SEC) suggested that all transactions that occur on the Ethereum blockchain could fall under the jurisdiction of the SEC because more Ethereum nodes are located in the United States than in any other country. . It appears that these recent stances on Ethereum were a clear bypass of the SEC and further hype aimed at getting the industry to sign up.
First, in 2018, William Henman, director of the Securities and Exchange Commission, declared that bitcoin and ether are not securities in the eyes of the SEC. This seemed rooted in the fact that Ethereum was sufficiently decentralized and in the difference between cryptocurrencies – alternatives to sovereign currencies – and digital tokens – assets revolving around a particular project.
But the PoS merger of Ethereum has muddied the waters, with the Securities and Exchange Commission suggesting that Ether might now be a Howey-tested security (asset is valuable if 1) a money investment; 2) In a joint venture. 3) with a reasonable expectation of profit; and 4) derived from the efforts of others). It is unclear how the merger could drastically change the nature and purpose of decentralized Ethereum to make it now a security (still closer to Bitcoin than digital tokens).
However, it is arguably closer to satisfying Howey factors, especially with the many features similar to crypto-lending that the SEC has claimed could make the product a security (see BlockFi Action). However, PoS is still very different from crypto lending platforms where tokens are stored and interest is earned through what the lending company does rather than the total effort of the lenders. So it is still highly unlikely that Ether is considered security in the context of what the Ethereum blockchain is primarily used for – smart contracts – and how my coins are mined.
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Second, requiring the SEC that transactions that occur on the Ethereum blockchain are subject to US jurisdiction because more Ethereum nodes are located in the US than any other country would extend the SEC’s reach beyond the US. Based on this reasoning, the SEC could assert jurisdiction over an Ethereum-based token that was developed in Germany and offered and sold in Germany exclusively to Germans, because the pooling of an Ethereum contract in the US would mean that the transactions actually took place in the US . Such an outcome seems unlikely to pass a legal muster.
Do all of these SEC aggressive stances herald enforcement action against Ethereum (who are they suing, anyway?) or action against foreign actors for foreign behavior on Ethereum? Most likely, this is a bargaining tactic designed to intimidate the industry into voluntarily surrendering to the jurisdiction of the SEC. “Come talk to us — and sign up,” really. Because if Ethereum risks being considered a security/exchange – Ethereum! So there are likely to be all other tokens and decentralized financial platforms in the industry.