Before ETH switched to Proof-of-Stake, the CFTC and SEC agreed that Bitcoin and Ethereum tokens are not securities. They also accepted that the two virtual assets are more identical to commodities. The ETH switch from Proof-of-Work must have brought back the crypto on SEC’s surveillance.
Is Ether Back On The SEC’s Radar?
Ether switched to PoS yesterday (15th September), and reports stated that the Chairperson of SEC, Gary Gensler, must have made a U-turn relating to how the agency views ETH while addressing journalists yesterday.
According to WSJ, Gensler says staking digital currencies will categorize it as a security under the Howey test. Although he didn’t mention any digital assets, people believe he was referring to Ethereum because the comment came on the day of the launching of Ethereum’s upgrade to PoS.
The Howey test stated that once investors anticipate gaining from others’ actions, that qualifies the trades as investments. They will be called securities, based on a US Supreme Court ruling. The ETH upgrade replaced mining with staking, which the SEC Chief believes makes the coins securities now. Gensler also added that platforms enabling staking look more like lending.
The regulatory body has been keeping close tabs on digital assets, which it believes fall under the securities category. It recently clashed with Ripple following the introduction of its token, XRP. Likewise, it mandated registration for firms lending digital assets. In February, BlockFi, a digital assets lending firm, got a fine of $100M for not enrolling accounts, which the body believes are securities because they yielded high interests.
Reaction To Gensler’s Comments
Reacting to Gensler’s comments, Gabor Gurbacs, a director at VanEck, an investment organization in the United States, addressed his Twitter followers through his handle. He explained that switching to PoS is bound to attract regulatory agencies. He added that he had seen this coming for the past six years.
He further explained that although the consensus mechanism doesn’t mean Ethereum is a security, the authorities see gains from staking under PoS as dividends. Which he says is one of the elements of the Howey test that sees transactions with all elements of the test as securities.
Further, he called for a meeting between the regulatory authorities and the digital assets market stakeholders in the US to build a better and acceptable framework for categorizing the virtual currencies in a way that will not adversely affect any of the parties, especially the traders and exchanges.
Finally, he said, current regulations are too burdensome for the virtual asset world and small businesses. Hence, authorities should mandate lighter and less costly regulations for them.