Around May, reports began surfacing that the Securities and Exchange Commission (SEC) was considering regulation for Ethereum, the blockchain powering the cryptocurrency Ether. This led many to speculate that the entire industry would soon see regulation, and would have far-reaching consequences for currencies initially funded via initial coin offerings.
More recently, the SEC’s director of corporate finance William Hinman made it clear that Ether is not a security, so it’s free from the SEC’s purview. Hinman provided his view on the popular currency during a statement at Yahoo Finance’s All Markets Summit.
“Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions.”
Due to its nature, Ethereum could have gone either way. Unlike bitcoin, Ether — Ethereum’s currency — acts as a fuel. Ripple works in a similar fashion.
The foundation of the Ethereum network is open source, which makes things relatively easy for developers who want to create compatible applications. As an incentive for writing valid, valuable apps, the developers are rewarded in Ether.
According to Hinman, “the token — or coin or whatever the digital information packet is called — all by itself is not a security.”
He goes on further to explain that how a currency is being sold is one of the major factors for determining security.
“Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers.”
As a result, Ether and bitcoin prices have jumped up following Hinman’s statement.
What Does This Mean for Cryptocurrency?
Hinman’s statement means Ether will not be regulated in the same way as corporate bonds and stocks. Since the currency functions similar to commodities like gold — thanks to decentralization — the ruling was that it’s not a security in its current form.
This obviously lowers a lot of the tension the industry has been feeling and would continue to see with highly restrictive regulations. While they may still appear, this is clearly not a rampant crackdown on the industry, leaving it relatively free to operate as before.
Manuel Lopez, general coordinator at WorkChain Centers, says the SEC rulings will incite growth simply because of the elimination of regulatory uncertainties.
“The threat of being classified as a security by the SEC heightened concerns about potential lawsuits and seizures. It was negative for developers and potential investors.
This new statement provides a more clear path, since decentralization and utility are key core elements of many of the blockchain projects being developed including AlfaToken. As a decentralized cryptofinance marketplace, we believe this is good news.”
Decentralization means reduced dependency on banks and money transfers, especially as cryptocurrencies become mainstream. In fact, several countries are already considering adopting government or state-sponsored crypto, including Russia, China, India and Venezuela. If and when this happens, the crypto market will surely see a large boost.
Is Regulation Good or Bad?
It’s tough to say whether or not regulation would be bad in the crypto landscape. It can be good for mass appeal of the industry because it makes people more comfortable with investing their money. You could argue that sentiment boosts crypto usage because more money flowing into the industry means more support, more transactions and higher prices.
However, regulation is both against core crypto principles — with decentralization at the center — and impossible for certain currencies. Anonymous currencies like Monero, for example, make it improbable that any regulation will happen. It’s likely heavy regulation and policies on these types of currencies would be a bust.
SEC’s ruling and statements essentially say that when you invest in cryptocurrencies like Ethereum and bitcoin, you’re betting on the entire ecosystem or community as opposed to a single player or business. This is wholly different from traditional investments and stocks, where you are, in fact, betting on a single corporation or entity.
Some feel that the recent claims are not indicative of SEC’s true plans, however. Reginald Ringgold, the founder of BlockVest, seems to think it’s shifty that the SEC has been recanting so many of its statements.
“The SEC has been recanting their statements a lot lately. They reversed their stance on Ethereum being a security, they also recently reversed an old law so the new law orders the SEC to change the rules to permit reporting companies to utilize Reg A+.”
The CTO and founder of OptDyn, Alex Karasulu, agrees with Ringgold. He even says the SEC contacts are simply playing good cop, bad cop.
“There’s been contradictory, good cop, bad cop, commentary coming out across different high-ranking officials at the SEC within days of each other. Looking deeper, a clear pragmatic enforcement message appears in Director Hinman’s good cop comment coupled with Chairman Clayton’s bad cop comment just days before.”
If that’s the case, regulation may soon be coming, after all.
For now, we’re all safe and content, and that means crypto will hopefully continue to rise instead of taking a downward spiral.
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