U.S. Securities and Exchange Commission chair Gary Gensler has seemingly given an answer on whether or not Ethereum (ETH) is a security. Although he did not mention ether directly, he hinted that all other cryptocurrencies apart from bitcoin have all the hallmarks of a security and should therefore be under the SEC’s purview.
Gary Gensler Somehow Addresses Ethereum’s Security Status
SEC boss Gary Gensler has recently addressed one of crypto’s most hotly contested issues. Almost eight years after Ethereum started producing blocks, the debate over whether ETH, the second biggest cryptocurrency by market cap, should be labelled a security rages on.
Speaking during a recent interview with New York Magazine, Gensler noted that all cryptocurrencies in circulation except bitcoin are normally created by a group of entrepreneurs who mostly set up their headquarters in tax haven offshored, and they might also have a foundation. According to the SEC boss, the teams behind these cryptos use various intricate and opaque techniques to promote their tokens and lure investors.
“They might drop their tokens overseas at first and contend or pretend that it’s going to take six months before they come back to the U.S.,” Gary posited. “But at the core,” he continued, “these tokens are securities because there’s a group in the middle and the public is anticipating profits based on that group.”
Gensler insisted that, as a legal matter, such cryptocurrencies fall within the jurisdiction of his commission.
Ether Wasn’t A Security Before, But It Could Be Now
Prior to Ethereum’s launch back in July 2015, the network sold its native ether token via an initial coin offering (ICO) in exchange for Bitcoin. Over 49 million ETH were sold during the public ICO sale, earning the Ethereum Foundation, a non-profit created to steward the blockchain’s growth, more than $17 million.
In ETH’s infancy, most crypto market participants argued that the token met the SEC’s so-called Howey Test as it entailed an investment of money in a common enterprise from which there was an expectation of profit based on that enterprise’s efforts.
Despite ambiguity over Ethereum’s status as a security plaguing its early years, the SEC previously weighed in on the network’s status. William Hinman, the former director of the SEC’s Division of Corporation Finance, said in June 2018 he believed Ethereum had become sufficiently decentralized like bitcoin and was then therefore, not a security.
But the SEC of today, under Gensler, might take a harsh stance. The former investment banker suggested that Ethereum, following the historic Merge upgrade, could be considered a security in the regulator’s eyes.
Notably, the SEC has already targeted Ripple in a suit that accuses the blockchain payments company of selling the XRP token as an unregistered security. That case remains in court, and the eventual ruling is bound to send shockwaves throughout the crypto industry, whichever way it goes.