• Thu. Jul 18th, 2024

What Occurs in the Event That the SEC Labels Ethereum as a Security?

Phillip Bryant

ByPhillip Bryant

Mar 28, 2024
What Occurs in the Event That the SEC Labels Ethereum as a Security?

The future of Ethereum remains uncertain—at present, ETH is not classified as a security by the U.S. Securities and Exchange Commission (SEC)—but this situation may undergo rapid transformation.

Ethereum is considered a decentralized digital currency rather than a security. Nevertheless, regulatory bodies such as the SEC are closely observing the cryptocurrency industry and could offer additional guidance or unexpected rulings down the line. Keeping abreast of changes in regulations is crucial.

There have been numerous reports indicating that several American companies have been served with subpoenas in an effort to classify ETH as a security.

The SEC’s Decision to Classify Ether as a Security Is Extremely Unlikely

According to Kenzi Wang, a co-founder and general partner at Symbolic Capital, it is highly improbable that the SEC will categorize Ethereum as a security. According to Wang, if the SEC were to classify ETH as a security, it would not only overturn established norms but also go against the stance of their regulatory partner, the Commodity Futures Trading Commission (CFTC).

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“The SEC has been making ambiguous statements regarding the security status of ETH, but the CFTC has made it clear that they consider ETH to be a commodity. This was evident in their 2022 filings related to the FTX/Alameda investigation,” Wang explained. 

Eth Futures Exchange-Traded Funds Received SEC Approval in 2023

In late 2023, the SEC approved the trading of ETH futures on regulated exchanges. Wang explains that the SEC did not take any steps to alter the commodity classification of ETH by the CFTC during the approval process.

“The lack of coordination between these two regulatory bodies [SEC and CFTC] not only has negative consequences for the general public, but it also serves as a significant obstacle preventing the SEC from making progress in classifying ETH as a security,” asserts Wang.

If Eth ETF Applications Were to Be Rejected, What Would Happen?

Multiple applications have been filed for an Ethereum exchange-traded fund (ETF) with the SEC, and the decision regarding the approval or denial of these products has been delayed, as anticipated by analysts.

The SEC has been given an extended deadline of May 23 to decide on VanEck’s application for an Ethereum ETF, which aims to track the performance of the world’s second-largest cryptocurrency.

The Securities and Exchange Commission Is Going to “Kick the Can Down the Road.”

HANetf founder and co-CEO Hector McNeil stated that the SEC intends to prolong its decision on approving ETH ETFs by using the review of ETH as a security means of postponement.

According to Laurent Kssis, head of CEC Capital, if the SEC decides to reclassify ETH as a security, it would significantly impact SEC applications involving ETH ETFs, potentially leading to their termination.

“It is not possible to transform an asset from commodity to securities in a short period, as the ETH futures are generally regarded as non-security and fall outside the jurisdiction and regulatory framework of the CFTC,” explains Kssis.

Security Token: What Is Meant by This?

A security portrays a portion of ownership or entitlements to an asset or a company. According to Kssis, the process of transferring ownership of an asset to a blockchain and giving it a token is referred to as tokenization.

By merging these concepts, a security token is formed – a digital embodiment of ownership or entitlement to a property that has been tokenized and securely stored on a blockchain. A security token is a digital asset that represents ownership or other rights in an investment asset. The value is transferred from an asset or collection of assets to the individual who possesses the secret keys to the token that holds the value.

Put, security tokens represent the digital version of conventional investments such as stocks and bonds. Regulators consider tokens to be securities if they satisfy the conditions outlined in the Howey test. This means that there must be an investment of money, a shared enterprise, and a reasonable anticipation of profit through the efforts of others,” Kssis explains.

ETH, the native token of Ethereum, was explicitly created to cover transaction costs within the Ethereum network. As a result, ETH functions as a cryptocurrency. However, due to its active trading on exchanges and its value appreciation, investors regard it as a token of security. Similar to stocks, these tokens need to be registered with the SEC.

If the SEC reclassifies ETH as a security, it could potentially remove it from listings.

According to Oliver Gale, one of the co-founders and CEO of Panther, he clarifies that ETH is not considered a security. Instead, he views the initial coin offering (ICO) as a sale of securities. He also emphasizes the importance of decentralization and global competition in the long run.

Phillip Bryant

Phillip Bryant

Phillip Bryant, an esteemed writer in the financial field, imparts his extensive knowledge of currency markets to the readers of Main Crypto News. With a wealth of experience in international finance and a keen sense of market trends, Bryant offers timely and perceptive analysis of foreign exchange, keeping readers well-informed.

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