Bittime - The crypto community is being embroiled in a series of debates following reports that the United States Securities and Exchange Commission (SEC) is considering classifying Ethereum (ETH) , the second largest crypto asset by market capitalization, as a security.
SEC Moves to Classify ETH as a Security
Popular media Fortune reported yesterday that the SEC is running a legal campaign that could help classify ETH as a security. Citing sources familiar with the matter, Fortune revealed that the securities regulator issued subpoenas to several US crypto asset businesses related to their ongoing investigations into Ethereum.
Specifically, the SEC is reportedly requesting documents and financial records that US companies have in their dealings with the Ethereum Foundation. The move poses a major threat to the SEC's hopes of approving a spot ETF for Ethereum this year as they did for Bitcoin.
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Influential Figures React
Although the SEC has not officially commented on the development, the report has sparked some reactions among top US officials and crypto enthusiasts.
Congressman Patrick McHenry, Chairman of the House Financial Services Committee, commented on the SEC's move as contradictory to its previous views on ETH and the CFTC's assessment of the coin. He reminded the SEC that the United States Congress is responsible for deciding its jurisdiction and budget, adding that Chairman “Gary Gensler cannot just take decisions.”
Interestingly, McHenry retweeted a Congressional hearing last year when Gensler declined to comment on whether ETH was a security or commodity. It is worth noting that the SEC's latest action is seen as a challenge to the US CFTC, which believes that ETH is a commodity and not a security.
Fox Business journalist Eleanor Terrett believes that if the SEC succeeds in classifying ETH as a security, the commission will indirectly say “ignore them” to the CFTC, which happens to be its sister agency.
SEC's New Steps Contradicate Past Actions
As Congressman McHenry previously mentioned, the SEC's latest actions contradict their previous actions regarding Ethereum.
Recall that the SEC, through Bill Hinman, former Director of Corporate Finance, declared ETH a non-security in 2018. Hinman argued that ETH is not a security because it is sufficiently decentralized.
Since the statement, the SEC has not labeled ETH as a security in any lawsuits against US-based crypto businesses.
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Possible Factors Influencing the SEC's New Action
However, many developments have occurred over the years that may have prompted the commission to change its stance.
For example, Ethereum switched to Proof-of-Stake (PoS) from Proof-of-Work (PoW) as a consensus mechanism, the main thesis on which Hinman based his argument when he classified Ethereum as a non-security in 2018.
Additionally, the New York Attorney General's Office (NYAG) labeled ETH as a security in a lawsuit against KuCoin. Furthermore, the SEC also gave Prometheum the green light to store Ethereum as securities.
Will XRP Surpass Ethereum?
With the SEC planning to categorize Ethereum as a security, some crypto enthusiasts have debated whether a potential lawsuit against the Ethereum Foundation would hurt ETH's price, allowing XRP to overtake it.
This argument is largely supported by XRP fans who witnessed how the SEC's legal action against Ripple cemented ETH's position as the second largest cryptocurrency by market capitalization.
Recall that before Hinman's speech, both ETH and XRP were engaged in a fierce competition over which crypto asset would become the second largest crypto asset by market value.
Shortly after Hinman declared Ethereum a non-security, some investors poured more funds into ETH, believing the asset was outside the SEC's jurisdiction.
This could change overnight if the SEC officially categorizes Ethereum as a security. XRP has received legal clarity after a years-long legal battle between Ripple and the SEC.
As previously reported, a federal judge stated that XRP itself is not a security. The order implies that XRP is currently outside the SEC's jurisdiction unless the regulator appeals the decision.
However, it remains unclear whether XRP can surpass Ethereum if the SEC officially declares ETH a security. Meanwhile, ETH is ranked as the second largest crypto asset, with a market capitalization of 417.6 billion US dollars.
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DISCLAIMER: This article is informational in nature and is not an offer or solicitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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