Ethereum, the second-largest cryptocurrency after bitcoin, has this week gone through a major upgrade—something that some think could play havoc with the ethereum price.
The ethereum price has crashed back this week after soaring in the run up to its long-awaited upgrade as the crypto market braces for a potential “black swan” event.
Now, the U.S. Securities and Exchange Commission (SEC) chairman Gary Gensler has warned ethereum’s upgrade could mean the cryptocurrency becomes regulated as a security—exacerbating an ethereum price sell-off.
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Ethereum’s transition to proof-of-stake, allowing ethereum holders to lock up their coins to receive a return, could be cause for the U.S. Securities and Exchange Commission (SEC) to take a closer look at regulating ethereum as a security, SEC chair Gary Gensler said following a Senate Banking Committee hearing, it was reported by the Wall Street Journal.
The upgrade, completed on Thursday after years of preparation, means the ethereum network is secured and transactions confirmed by ethereum holders “staking” their coins instead of relying on so-called miners. Ethereum’s transition to proof-of-stake could reduce the blockchain network’s carbon emissions by 99%, according to the Ethereum Foundation.
“From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” Gensler reportedly said, adding he wasn’t referring to any specific cryptocurrency.
According to the Howey test, a security is defined as an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” Securities are then subject to disclosure and registration requirements.
In a blow to Coinbase and other crypto exchanges, Gensler said any crypto trading platform offering staking services to users “looks very similar—with some changes of labeling—to lending.”
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Gensler also reiterated his view that almost all cryptocurrencies are securities, once again calling on crypto companies to register with the SEC.
“Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities. Offers and sales of these thousands of crypto security tokens are covered by the securities laws, which require that these transactions be registered or made pursuant to an available exemption,” Gensler said in prepared remarks. “Thus, I’ve asked the SEC staff to work directly with entrepreneurs to get their tokens registered and regulated, where appropriate, as securities.”
Last week, the White House Office of Science and Technology warned bitcoin, which uses the energy-intensive proof-of-work consensus mechanism, could be banned in the U.S. due to its sky-high carbon footprint.