Are regulators with the U.S. Securities and Exchange Commission gearing up to take down Ethereum? Given the saber-rattling by officials \u2014 including SEC Chairman Gary Gensler \u2014 it certainly seems possible.<\/p>\n
The agency went on a crypto-regulatory spree in September. First, at its annual The SEC Speaks conference, officials promised to continue bringing enforcement actions and urged market participants to come in and register their products and services. Gensler even suggested crypto intermediaries should break up into separate legal entities and register each of their functions \u2014 exchange, broker-dealer, custodial functions, etc. \u2014 to mitigate conflicts of interest and enhance investor protection.<\/p>\n
Next, there was an announcement that the SEC\u2019s Division of Corporation 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 registering crypto market participants. Then, there was testimony before various Senate Committees on proposed legislation to overhaul crypto regulation, where Gensler reiterated his belief that nearly all digital assets are securities, implicitly endorsing his view that such digital assets and relevant intermediaries should register with the SEC. <\/p>\n
But perhaps the most ground-shaking shots occurred when the SEC took aim at Ethereum, possibly reversing a years-long d\u00e9tente that began when a previous SEC official stated that Ether (ETH<\/a>), along with Bitcoin (BTC<\/a>), was not a security. In his testimony before the Senate Banking Committee, Gensler suggested that Ethereum\u2019s transition to proof-of-stake (PoS) from proof-of-work<\/a> could have brought Ethereum under the SEC\u2019s purview because, by staking coins, \u201cthe investing public [is] anticipating profits based on the efforts of others.\u201d<\/p>\n Related: <\/em><\/strong>Biden is hiring 87,000 new IRS agents \u2014 and they\u2019re coming for you<\/em><\/strong><\/a><\/p>\n Later, in a complaint filed against a token promotor, the SEC suggested that all transactions occurring on the Ethereum blockchain<\/a> could fall within the SEC\u2019s jurisdiction because more of Ethereum\u2019s nodes are located in the U.S. than any other country. These recent positions on Ethereum appear to be clear SEC overreach and more saber-rattling meant to prompt the industry to register.<\/p>\n First, back in 2018, then-SEC Director of Corporation Finance William Hinman declared that Bitcoin and Ether were not securities in the eyes of the SEC. This seemed rooted both in the fact that Ethereum was sufficiently decentralized and in the difference between cryptocurrencies \u2014 replacements for sovereign currencies \u2014 and digital tokens \u2014 assets revolving around a specific venture. <\/p>\n But Ethereum\u2019s Merge to PoS<\/a> has potentially 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). It\u2019s unclear how the Merge could have substantively changed the decentralized nature and purpose of Ethereum to now make it a security (it\u2019s still more akin to Bitcoin than digital tokens).<\/p>\n Arguably, though, it is closer to meeting the Howey factors, especially with more crypto-lending-like attributes that the SEC has already alleged can make a product a security (see<\/em> BlockFi action). PoS, however, is still quite distinct from crypto-lending platforms where tokens are staked and interest earned by what the lending company does rather than the combined efforts of the stakers. So, it still seems far-fetched to deem Ether a security when viewed in the context of what the Ethereum blockchain is primarily used for \u2014 smart contracts \u2014 and how its coins are mined.<\/p>\n![](\"https:\/\/s3.cointelegraph.com\/uploads\/2022-10\/1e83dad0-5834-4aca-8b1b-8c65d675131b.jpg\")
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