SEC Chairman Clarifies Ethereum’s Status As Security
SEC boss Gary Gensler, has yet again weighed in on the possibilities of cryptocurrencies becoming securities. In an interview with CNBC, the head of the financial regulator was asked if the world’s second-largest crypto by market cap Ethereum was security, but refused to answer the question directly.
Although he said he doesn’t get involved in discourse like that of crypto or air legal advice, he did make something clear. Gensler stated that if the crypto was raising money in the form of a coin offering, then its status as being security can’t be questioned.
As defined by Howey Test, a security is a financial asset with monetary value. It’s proof of ownership of stocks or investments in general, in which the shareholder or investor expects profits based on the enterprise’s performance.
Gensler further said that if crypto assets were raising funds from people and the latter anticipates some profits based on the advertiser’s or sponsor’s speech, it’s defined within the confinements of the law as security. This left everyone puzzled if he was indirectly referring to Ethereum as a security, given that the digital currency was sold through an I.C.O. in 2014.
The SEC Doesn’t Consider Bitcoin As A Security
The regulator has made it clear severally that it doesn’t consider the king of coins as a security, given its decentralization. However, the SEC considers other cryptos, such as XRP as a security. The SEC vs Ripple (XRP) has been in court since late 2020, but Ripple expects the issue to be resolved this year.
Many market participants think that Ethereum wasn’t a security despite its Initial Coin Offering held in 2014. William Hinman, who headed SEC’s Finance division also thinks that ETH isn’t a security since it has been “sufficiently decentralized”.
Before 2018, the laws of securities didn’t apply to cryptocurrencies due to their novelty. In today’s terms, according to experts, ETH would have been referred to as an unregistered security, like XRP. Still, it may not matter to Gensler, as he could take a firmer stance against ETH.
Gensler Is Bent On Regulating The Industry
Crypto regulations were one of the most talked-about trends in 2021. Several countries weighed in on different methods to regulate the sector to mitigate its effect on the traditional financial space. The likes of China and some of its Southeast Asian neighbors banned crypto entirely.
Gensler, who once taught blockchain courses at MIT is eager to toughen the rules that guide the crypto sector to the disappointment of investors. Gensler believes that many cryptos in the Ethereum ecosystem are unregistered tradable assets. Therefore, regulations need to be instituted to safeguard the investors from fraud and public lies.
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