The long-awaited Ethereum (ETH) blockchain upgrade may already be at the root of the controversy as US Securities and Exchange Commission Chairman Gary Gensler has stated that cryptocurrency issuers and brokers that allow crypto holders to “participate” may meet key criteria used by courts to determine whether The original was a security, The The Wall Street Journal mentioned.
The mentioned test isHowey Test”, which refers to the US Supreme Court case of the same name, used to determine whether a transaction qualifies as an “investment contract,” and thus qualifies the underlying asset as security, making it subject to disclosure and recording requirements as set forth underSecurities Law1933, andSecurities Law1934.
Without specifically referring to any cryptocurrency, Gensler said, “From a currency perspective, this is another reference, under Howey’s testThe investing public expects profits based on the efforts of others.”
After being upgraded to a proof of stake model, Ethereum, if classified as an asset class that includes stocks and bonds, will be required to submit comprehensive disclosures to the SEC. Ethereum has so far been working on an alternative model, known as Proof of Work, before completing its transition to the Proof of Stake model this week.
The second largest cryptocurrency will face strict obligations if it is to sell any assets that are considered securities by the SEC or the courts. However, Ethereum is not alone in facing the possibility, as staking is also used by Solana and Cardano, which will be subject to the same outcome.
Gensler emphasized that “if a broker like a cryptocurrency exchange” offers staking services to its clients, it “looks very similar — with a few rating changes — to lending.”
Gensler described the cryptocurrency market as the Wild West
The Securities and Exchange Commission (SEC) recently fined BlockFi $100 million for failing to register with the agency, insisting that companies offering crypto-lending products must be registered with the regulator.
During exchanges like Queen Piece The FTX is required to register with the Commodity Futures Trading Commission (CFTC), and they are also required to disclose certain information about listed assets, such as operating structures and conflicts of interest. However, the The Wall Street Journal Note that consumer advocates are concerned that the CFTC lacks the resources and expertise to seek out small investors in a marketplace previously described by Gensler as the “Wild West”.
Meanwhile, CFTC Chairman Rustin Behnam stated that “to fund its oversight of the digital commodity market, the CFTC will need $112 million over the first three years for rule-setting, recruitment, training and outreach purposes.” He added that the amount could be generated by crypto companies in the form of user fees.
Gensler recently compared the cryptocurrency market to the capital market, arguing that they should not be treated differently.