The regulatory attitude towards cryptocurrencies is always a subject of discussion because of its ability to affect how easy it is for mainstream users to access it. In recent news, the Chairman of the United States Securities and Exchange Committee, Jay Clayton, has made some very favorable remarks regarding Ethereum’s status as a security.
Is it a Security?
It is constantly in question what tokens are considered securities, since that determines how they will be regulated, and recent comments in a letter clarified many of his thoughts on this. He started by saying:
“A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition.”
But went on to respond to Director Hinman’s past comments regarding Ethereum likely not being a security transaction based on its present state with:
“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”
The Howey test is a two-part checklist to determine whether a transaction represents a security or not. For a token to be considered a security, it would have to involve the expectation of profit from a third party, as well as the investment of money into an enterprise. The tax treatment and regulation of Ethereum is way better for those looking to buy Ethereum if it is not considered a security.
Clayton’s comments still leave lots of uncertainty as to what coins are considered to be similar enough to Ethereum for this statement to apply, but it is a start. As usual, the Ripple community has begun to trumpet this as good news for XRP, but there is no indication that the comments apply that way.
SEC’s Approach to Crypto
In the past few years, the SEC has used a broad variety of tactics to educate investors about the risks of ICOs. One creative example is the launch of “HoweyCoins.com”, which appeared to be an ICO but was really a link to the SEC’s education materials.
With regulation, there is a fine line between being too restrictive against innovation or being too loose, which can put investors at risk. In October 2018, the SEC formed the Strategic Hub for Innovation and Financial Technology (FinHub) to serve as a public resource for FinTech issues regarding the SEC. Ideally, this will speed up the dialogue between innovators and regulators, so the US can continue to be a great place for builders to operate.
More Positive Indicators
In other recent news about Ethereum, digital currency exchange and wallet Abra has just announced support for Ethereum on March 12th. This is expected to help as they build out support for ERC-20 tokens in the near future, and signals good things for Ethereum in the future.
Additionally, crypto asset management firm Electric Capital recently announced that Ethereum had more developers working on its base protocol than any other cryptocurrency. With 99 monthly developers on average, this puts it at twice Bitcoin (approximately 47 monthly developers on average). Developers tend to be a very strong indication of the health of a protocol, since they are basically a demonstration of how much they are improving.