In an surprising announcement, it appears that the Securities and Exchange Commission (SEC) will likely find that the cryptocurrency ether is not a security. The announcement was made by SEC Director of Corporate Finance William Hinman at Yahoo Finance’s All Market Summit: Crypto. That could clear up a significant hurdle that could have ended Ethereum’s existence as the world’s number two cryptocurrency.
Had ether been labeled a security, it would have meant additional scrutiny from SEC. Any company buying, selling, storing, or facilitating the exchange of ether would have had to get licensed, as well as any employees dealing with those activities. That would have been a near-fatal blow, as the additional regulatory burden would likely have resulted in many firms no longer dealing with ether. With more limited options for buying and selling ether, the user base would have shrunk and ether would definitely have fallen from its height. By making it clear that ether (and Bitcoin) are not securities, SEC will ensure that those two cryptocurrencies and their forks will not be subject to SEC regulation.
While ether has characteristics of a security, and its initial dispersion to users was made through a security-like offering, SEC is nonetheless leaning towards ruling that it is not a security. Key to that decision-making process is the amount of decentralization of the network.
Since both Bitcoin and ether are mined, their issuance is essentially decentralized, unlike shares of stock that would be issued by a corporation. Since there is no central issuer to issue or manage the cryptocurrency, and because the cryptocurrency’s performance isn’t bound up with the performance an issuing authority, the cryptocurrency is not considered a security. Instead, SEC has determined that cryptocurrencies behave more like commodities, which of course brings up the prospect of further regulatory scrutiny from the Commodity Futures Trading Commission (CFTC).
But Ethereum investors can now breathe a sigh of relief, as can Bitcoin investors. If this announcement is made official, then neither Ethereum IRAs nor Bitcoin IRAs will now be subject to additional regulatory oversight, meaning investors can continue on as they always have. That regulatory certainty will allow further innovation in the cryptocurrency sphere and enable cryptocurrency investors to continue to enjoy nice gains. Both Ethereum and Bitcoin spiked today after Hinman’s comments, with Bitcoin up nearly 6% and Ethereum up over 9%.