The potential classification of Ethereum (ETH) as a security by the U.S. Securities and Exchange Commission (SEC) has sparked a series of debates within the crypto community. Reports from Fortune indicate that the SEC is actively pursuing legal action to classify ETH as a security. The securities regulator has subpoenaed several U.S. crypto businesses and requested documents and financial records related to their dealings with the Ethereum Foundation. This move poses a threat to the SEC’s approval of a spot ETF for Ethereum, similar to the one approved for Bitcoin.
The news has generated reactions from influential figures in the U.S., including Congressman Patrick McHenry, Chairman of the House Financial Services Committee. McHenry criticized the SEC’s actions, stating that they contradict the agency’s previous views on ETH and the assessment of the Commodity Futures Trading Commission (CFTC). He emphasized that the U.S. Congress holds the responsibility for determining jurisdiction and budget, suggesting that SEC Chair Gary Gensler cannot make decisions arbitrarily.
The SEC’s latest move is seen as a challenge to the CFTC, which considers ETH to be a commodity rather than a security. Fox Business journalist Eleanor Terrett believes that if the SEC classifies ETH as a security, it would indirectly challenge the CFTC, its sister agency.
This recent action by the SEC contradicts its previous stance on Ethereum. In 2018, Bill Hinman, former Director of Corporation Finance at the SEC, declared ETH to be a non-security due to its decentralized nature. Since then, the SEC has not labeled ETH as a security in any lawsuits against U.S.-based crypto businesses.
There are several factors that may have influenced the SEC’s shift in position. For instance, Ethereum’s transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus algorithm could have played a role. Additionally, the New York Attorney General’s Office classified ETH as a security in a lawsuit against KuCoin, and the SEC approved Prometheum’s custody of Ethereum as a security.
The potential classification of Ethereum as a security has led to discussions about whether XRP could overtake ETH in market cap. XRP enthusiasts argue that a potential lawsuit against the Ethereum Foundation could impact ETH’s price and allow XRP to surpass it. This argument is supported by the SEC’s legal action against Ripple, which solidified ETH’s position as the second-largest cryptocurrency by market cap. However, it remains to be seen if XRP can overtake Ethereum if the SEC officially declares ETH a security.
At present, ETH holds the second-largest market cap at $417.6 billion, while XRP is ranked sixth with a valuation of $33 billion. It is important to note that this article provides informational content and should not be considered financial advice. Readers are encouraged to conduct their own research before making investment decisions.