SEC Disagreement Emerges on Whether Ethereum Is a Security

Ali Martinez

Apr. 9, 2021

Concerns are growing over Ethereum's legal status because the U.S. Securities and Exchange Commission has not taken an official stance yet.

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Shutterstock cover by Al Medwedsky

Key Takeaways

SEC Chairman Gary Gensler has repeatedly alluded that Bitcoin is a commodity.
But his comments on Ethereum date back to 2018 when he said it is a non-compliant security.
Until an official statement by the financial watchdog is released, a senior counsel at the SEC recommends that investors take a note of caution.

Regulators in the U.S. have yet to offer clarity around the legality of Bitcoin and Ethereum. Although the former has been unofficially deemed a commodity, the latter could fall in line with Ripple’s security status.

Bitcoin Is a Commodity

The U.S. Securities and Exchange Commission’s (SEC) stance on Bitcoin seems clear. Though the financial watchdog has yet to issue an official document, Chairman Gary Gensler alluded that BTC is a commodity.

During his congressional hearing in early March, Gensler promised to promote blockchain technology while ensuring that investors are protected.

“To the extent that somebody is offering an investment contract or security that’s under the SEC’s remit, and they have exchanges that operate there, then we have to make sure there’s investor protection. If it’s not that, and it’s a commodity, as Bitcoin has been deemed to be, then it’s either a question for Congress … or it’s possibly a question for the Commodity Futures Trading Commission,” said Gensler.

Along the same lines, SEC commissioner Hester Peirce recently affirmed that the U.S. has moved past the point of banning Bitcoin because the only way to do so is by “shutting down the internet.”

The pioneer cryptocurrency’s decentralized nature would likely outpace any attempt to limit its use, so “it would be a foolish thing for the government to try to do that.”

Ethereum Legal Status in Limbo

Despite the overall consensus around Bitcoin’s non-security status, the same does not apply to the second-largest cryptocurrency by market capitalization, Ethereum.

Dugan Bliss, senior trial counsel at the SEC, said that the agency had not taken an official position on Ether.

The attorney disregarded previous claims made by Bill Hinman, former director of the SEC’s Division of Corporation Finance, who suggested that offers and sales of ETH are not securities transactions.

“Now, there was a speech by a high-ranking person who said that to him that’s what it looked like, but there has been no action letter, no enforcement action, none of the official ways in which the SEC takes a position on that matter that has occurred,” said Bliss.

Bliss’ remarks fall in line with what Gensler told the New York Times in 2018. “There is a strong case for both [Ethereum and Ripple] that they are non-compliant securities” because these cryptocurrencies were sold by their creators and purchased primarily as investments for speculative reasons.

Ripple and its two main executives, Chris Larsen and Brad Garlinghouse, are already facing charges for the sale of unregistered securities worth $1.3 billion. Meanwhile, the Ethereum Foundation and its founder Vitalik Buterin have yet to be subpoenaed by a regulatory agency.

Until an official statement is released, investors should approach Ethereum with caution, as counsel Bliss suggested.

Disclosure: At the time of writing, this author owned Bitcoin and Ethereum.

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