Ethereum Reportedly Under Scrutiny by Regulators
The world’s second largest cryptocurrency (behind Bitcoin) is apparently the subject of regulatory scrutiny. According to a report by the Wall Street Journal, some regulators see the creation of Etherum in 2014 as an illegal securities sale and are looking to treat the coin as a security. Following this news, the price of Ether fell by 6%, although further discussions or the declaration of Ethereum as an unregistered security would surely do much greater damage to the currency’s price.
Among those calling out Ethereum is former Commodity and Futures Trading Commission (CFTC) chairman Gary Gensler. In a speech last week, Genslet said, “There is a strong case that one or both of ETH and [Ripple’s] XRP are noncompliant securities.” However supporters argue that Ether point to its decentralized model and how the coin is not mined or owned by any single entity. To that point, venture capitalist firms Andreessen Horowitz and Union Square Ventures wrote in a recent proposal that Etherum “has become so decentralized it should not be deemed a security.” However regulators are reportedly looking into what they call “central actors” and their impacts on the value of the coin. Among the “central actors” being considered is Ethereum Foundation.
Incidentally, when it comes to regulation, it seems that different agencies have taken opposing views of cryptocurrencies. For example the CFTC had previously described cryptocurrencies such as Bitcoin as commodities. That classification would except them from regulation by the Securities and Exchange Commision (SEC). Meanwhile the SEC has suggested such coins are indeed securities and has announced intents to regulate crypto exchanges, wallets and other aspects of cryptocurrencies. WSJ says that members of both agencies are set to discuss cryptocurrency topics next week.
Classifying Etherum or other crypto coins as unregistered securities could also have major impacts for companies like Coinbase. As WSJ reports, Coinbase has previously discussed registering as a brokerage firm with the SEC, but brokers are unable to trade unregistered securities. Because of this, were Coinbase to pursue their brokerage firm plans, it could only serve to escalate the battle over Ether’s regulatory status.
While top cryptocurrencies like Bitcoin and Ethereum have enjoyed a significant lift in recent weeks, this latest report from Wall Street Journal once again shows how many unknown roadblocks may be up ahead. Not only could further regulatory inquiries be bad news for current crypto coin holders but could also deal a major blow to growing businesses like Coinbase and others. Ultimately these regulatory battles were always to be expected and it will be interesting to see where the various agencies land on some of these big crypto questions.