The Purse
The Purse
Is ethereum a commodity or a security?
0:00
-0:46

Is ethereum a commodity or a security?

In a US hearing Tuesday, the SEC chair refuses to answer the question about whether ethereum is a commodity or a security.

Welcome to our #173 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova


From The Purse


In this week’s newsletter, we focus on the US Securities and Exchange Commission (SEC) hearing Tuesday and consider whether ethereum (ETH) is a commodity or a security.

The US market is growing more frustrated with the SEC’s lack of regulation clarity which means the crypto industry is starting to look to the EU and the UK. And the UK could become the new ‘hub for Web3 innovation’.

***

And you can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana


Is ethereum a commodity or security?

In a US hearing Tuesday, the SEC chair refuses to answer the question about whether ethereum is a commodity or a security.


On Tuesday, the US Securities and Exchange Commission (SEC) chair, Gary Gensler was questioned about whether ethereum (ETH) was a commodity or a security, as reported by Cointelegraph.

ETH is the second largest cryptocurrency after Bitcoin and its current market cap is $224.80bn. The price of one ETH is $1,869.43. Ethereum is an open-source, decentralised smart contract blockchain platform and its token is ETH (ether).

How to classify cryptocurrencies has become a central question because it will determine how the market is regulated and how it develops.

In the US hearing, Patrick McHenry – the chair of the United States House Financial Services Committee, challenged Gensler repeatedly who refused to confirm either way.

Representative McHenry used his opening statement ‘to bring up the commission’s ‘punishing’ of digital asset firms through regulation by enforcement without a clear path to compliance’.

McHenry repeatedly talked over Gensler who did not provide specifics in his response, citing Gensler’s willingness to label Bitcoin as a commodity, in addition to hinting at private conversations on ether before the hearing.

According to the Co-founder of Ethereum, Joseph Lubin, ethereum is more akin to a commodity like oil. In March at Paris Blockchain Week, Lubin said he was ‘very confident’ ether was not a security.

Previously, the SEC suggested ethereum may be classed as a security due to its switch to a new verification system known as ‘proof of stake’, where the blockchain’s validators gain interest-like yield.

And unlike Bitcoin, ether fuels an ecosystem of applications where users can make trades, loans, or buy nonfungible tokens.

While lecturing at MIT on a blockchain open course (before his appointment to the SEC), Gensler stated that ethereum may have been a security in 2014, but now SEC has stated it is sufficiently decentralised that it is no longer a security.

What is a commodity vs a security?

Commodities are raw materials that are used as inputs in the production of other goods or services, such as oil and natural gas, gold and silver, as well as food and agricultural goods like coffee. They tend to have limited supply.

A security is broadly defined as a financial instrument that has value and can be traded. It includes stocks, bonds, exchange-traded funds (ETFs) as well as other investments.

Commodity markets are generally regulated less stringently.

Securities on the other hand are subject to rules on price transparency, greater reporting demands, as well as market abuse oversight.

Securities are closely regulated by the Securities and Exchange Commission (SEC), while commodities are regulated by the Commodity Futures Trading Commission (CFTC).

According to some regulators ether fulfils the Howey Test

….which states that an investment contract exists if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others.

Lubin has countered this argument by saying that ‘..people buy barrels of oil with the expectation of profit’, therefore ethereum should be considered a commodity.

In March, the SEC issued crypto exchange Coinbase a notice warning the company that it had identified potential violations of U.S. securities law.

On Thursday, the European Union finalised its wide-ranging markets in crypto assets (MiCA) legislation on Thursday, making it one of the first major jurisdictions to clarify its approach on supervising the sector.

Meanwhile, UK Economic Secretary, Andrew Griffith confirmed that the UK may have crypto regulation within next the 12 months.

Brian Armstrong, the CEO of US based crypto exchange Coinbase, met with Griffith earlier this week while he was in London to give a speech on how the UK could ultimately become an ‘innovation hub for the Web3 economy.’

***

What next? (Re) listen to The Purse Podcast:

Share


News in Brief


Financial news

Crypto: bitcoin, ethereum, DeFi & NFTs


Coffee Break? Read This



We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and janicka.

The Purse Ltd. Copyright 2023 & All Rights Reserved.

The Purse provides content for informational purposes only, we do not provide investment advice. Please do your own research or speak to a financial adviser.


Discussion about this episode

User's avatar