Ethereum in the sights of the SEC? The American regulator is taking a close interest in the Ethereum network. So what about and can the SEC cause problems for Ethereum?
Serial announcements for the SEC.
The SEC, Securities and Exchange Commission, has appeared on all fronts since the start of the school year. During its annual conference “ The SEC Speaks ”, the leaders of the organization urged the various players in the crypto market to come and register their various products and services.
For Gary Gensler, the director of the SEC, the ideal would be to split the companies into different legal entities according to their functions: brokerage, custody of assets, etc. For him, this is the best way to prevent conflicts of interest and best protect investors. A proposal that goes a long way and will have difficulty convincing the various players in the crypto market.
Even more recently, the SEC's Division of Corporation Finance announced the creation of an Office of Crypto Assets, an office dedicated to cryptocurrencies. A way to help register the various crypto market participants. Perhaps also a further step towards appropriate legislation for the latter?
During hearings before various Senate committees, Gary Gensler took the opportunity to recall his vision of cryptos. According to the SEC Director, all crypto assets are securities. Thus, the intermediaries of this market would have the obligation to register with the American regulatory authority.
Ethereum on the grill.
However, the most striking news remains the SEC's desire for control over Ethereum. During his testimony before the Senate Banking Committee, the SEC Chairman said that Ethereum's transition from proof of work to proof of stake could bring Ethereum under his jurisdiction.
A few days later, in a complaint to a token developer, the SEC suggested that all transactions made on the Ethereum network could fall under its jurisdiction. For this, it is based on the significant presence of Ethereum nodes in the country.
Indeed, the latter is for the moment mainly located in the United States. If this argument is only declarative for the time being, it has the merit of putting pressure on Ethereum and the entire crypto industry.
The main players responsible for Ethereum staking are located in the United States: Lido, Coinbase, and Kraken.
It is also a change in the position and doctrine of the SEC from the past. In 2018, William Hinman, the director of the SEC's Corporation Finance department, declared that Bitcoin and Ether did not fall into the category of securities of the SEC.
For him, this was due to the decentralized nature of Ethereum and the difference between cryptocurrencies, which replace FIAT currencies, and digital tokens, assets from a specific company.
The Merge responsible for this reversal?
So, the Merge would have changed everything? To argue in this sense, the SEC relies on the Howey test. The latter defines security as an investment of money in a common enterprise with a reasonable expectation of profits and from the efforts of others.
However, if we take this definition, it is difficult to fit Ethereum into the category of securities. Indeed, the latter remains decentralized and Ether remains closer to Bitcoin than to a digital token linked to a company.
For the SEC, staking can resemble a crypto loan and turn Ether into security. Still, it can be argued that Proof of Stake is quite different from a crypto lending business in many ways.
The SEC's argument regarding the presence of Ethereum nodes in the United States is also problematic. If all network transactions are effectively under its jurisdiction, this means that a French or Brazilian user sending ethers is also under the jurisdiction of the SEC. This poses obvious legal problems and therefore seems unlikely.
Some observers say these recent statements and assertions are the SEC's way of showing its teeth. It is difficult for the moment to say whether a real major action will take place concerning Ethereum.
This may be more of a means of pressure to call on the various players to register with the SEC than a real attempt to regulate the second largest capitalization of the crypto market.
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