Betting on Ether Could Lead to Securities Rules – Gensler
Ethereum’s upgrade to proof of stake may have brought the cryptocurrency back into the SEC’s crosshairs.
Speaking to reporters after the September 15 Senate Banking Committee meeting, SEC Chairman Gary Gensler said that cryptocurrencies and brokers that allow their holders to “participate” in their cryptocurrency may define it as security under Howey’s test, according to the Wall newspaper. Street Journal.
From a currency perspective […] This is another indication that under Howey’s test, the investing public is expecting profits based on the efforts of others,” Gensler was reported by the Wall Street Journal as saying.
The comments came on the same day as Ethereum (ETH) moved to Proof of Stake (PoS), which means the network will no longer rely on power-intensive “Proof of Work” mining, and instead allow validators to validate transactions and create new blocks in a process that includes Staking”.
Allowing stockholders to have the coins, Gensler said, results in “the investing public expecting profits based on the efforts of others.”
Gensler went on to say that brokers that offer staking services to their clients are “a lot like – with some changes in labeling – lending.”
The SEC has previously said that it does not view Ethereum as a security, with the CFTC and the SEC both agreeing that it acted more as a commodity.
The Securities and Exchange Commission (SEC) keeps a close eye on the crypto space, particularly those that claim to be securities. The regulator has been implicated in a case against Ripple Labs regarding the launch of XRP.
The SEC has also paid companies offering crypto-lending products to register with it, including a $100 million fine directed at BlockFi in February for failing to register high-yield interest accounts deemed securities by the SEC.
Gabor Gurbacs, director of digital asset strategy at US investment firm VanEck, tweeted to his 49,300 followers that he had been saying for more than six years that “POW’s transition to POS could attract regulatory attention.”
To be clear, I’m not saying that ETH is necessarily a security because of its proof model, but regulators are already talking about bets in the context of dividends that if it’s a feature of what the securities laws call a “combined enterprise”. There are other factors in the Howey test, too.
– Gaborgurbacs (@gaborgurbacs) September 15, 2022
Gurbacs went on to explain that regulators refer to rewards from staking as winnings, a feature of the Howey test.
Related: Crypto developers should work with the Securities and Exchange Commission to find common ground
Howey’s test refers to a 1946 Supreme Court case in which the court established whether the deal qualified as an investment contract. If it did, it would be considered a security and covered by the Securities Act of 1933.