The Securities and Exchange Commission is moving to act against Ethereum, which goes far beyond the borders of the United States.
Are US Securities and Exchange Commission regulators ready to kill Ethereum? With saber rattling from officials, including SEC Chairman Gary Gensler, it certainly seems possible.
The agency embarked on crypto regulation in September. First, at its annual The SEC Speaks conference, officials promised to take further enforcement action and urged market participants to come forward and register their products and services. Gensler even suggested that crypto brokers should be divided into separate legal entities and register all their functions (exchange, broker, custody function, etc.) to reduce conflicts of interest and improve investor protection.
Next, there was an announcement that the SEC’s Division of Corporate Finance plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to its Disclosure Review Program this fall to assist in the registration of market participants. cryptographic. Subsequently, there was testimony before various Senate committees on proposed legislation to review crypto regulation, where Gensler reiterated his belief that almost all digital assets are securities, implicitly endorsing his view that such digital assets and relevant intermediaries are involved in the registry. of the SEC.
But perhaps the most chilling shots came when the SEC took aim at Ethereum, possibly reversing a year-long détente that began when a former SEC official said ether
, along with Bitcoin
, there was no certainty. In his testimony before the Senate Banking Committee, Gensler suggested that Ethereum’s transition to proof-of-stake (PoS) from proof-of-work would have put Ethereum under SEC security because through the coins, “the public investor [is] predicting profits based on the efforts of others”.
Related: Biden is hiring 87,000 new IRS agents, and they will come for you
Later, in a complaint against a token promoter, the SEC suggested that all transactions occurring on the Ethereum blockchain could fall under the jurisdiction of the SEC because the majority of Ethereum nodes are in the United States which in any other country. These recent positions on Ethereum appear to be clear overreach by the SEC and more saber rattling intended to record the industry.
First, in 2018, SEC Director of Corporate Finance William Hinman declared that Bitcoin and Ether were not securities in the eyes of the SEC. This seemed to be rooted both in the fact that Ethereum was sufficiently decentralized and in the difference between cryptocurrencies, stand-ins for sovereign currencies, and digital tokens, assets that revolve around a specific company.
But Ethereum’s merger with PoS has potentially muddied these 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 joint venture; 3) with a reasonable expectation of profit; and 4) derived from the efforts of others). It is unclear how the merger would have substantially changed the decentralized nature and purpose of Ethereum to make it now a security (it is still more similar to Bitcoin than digital tokens).
Probably, however, it is closer to meeting the Howey factors, especially with more crypto loan-like attributes, which the SEC has already claimed make a product a security (see BlockFi action). However, PoS is still quite different from crypto lending platforms, where tokens are issued and interest is earned through what the lending company does rather than the combined efforts of the participants. So it still seems far fetched to consider ether as a security when viewed in the context of what the Ethereum blockchain (smart contracts) is primarily used for and how its coins are mined.
Related: Biden’s Cryptocurrency Framework Is a Step in the Right Direction
Second, the SEC’s assertion that transactions taking place on the Ethereum blockchain are subject to US jurisdiction because most Ethereum nodes are located in the US. that in any other country expands the SEC’s reach far beyond the US. Based on that reasoning, the SEC could assert jurisdiction over an Ethereum-based token developed in Germany, or