The US Securities and Exchange Commission provided a boost to crypto-currency markets yesterday when it ruled that Ethereum was not a security.
Traders and investors have been showing nerves for several weeks now as regulators debated on whether the world’s second largest digital currency, by market capitalization, should be considered an equity, and the key point from the ruling is that US securities laws will not apply to Ethereum as a tradable commodity because of its decentralization.
It acknowledges that Ether was originally sold as in initial coin offering (ICO), but it is not controlled by any central third party giving investors a future expectation of value. Since decision making is spread out, no single party can be privy to key information that would give them an advantage for insider trading.
At a Yahoo Finance Crypto summit, SEC Director of Corporate Finance William Hinman stated: “Putting aside the fundraising that accompanied the creation of Ether, 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,” according to Fortune.
Hinman added that “as a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful. As with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.” He continued to state that other laws are still applicable to companies that issue tokens, including those regarding know-your-customer (KYC) and anti-money-laundering (AML) regulations. Investor contracts that involve Bitcoin may be classed as a security if they meet certain criteria or offer a future increase in value, according to Hinman.
SEC chief Jay Clayton previously put crypto investors on edge when he stated, back in April, that “every ICO I’ve seen is a security.” Bitcoin was the exception said Clayton, adding that he did not consider the virtual currency an equity. This latest ruling though would seem to overturn this blanket sentiment and give a long needed boost to crypto-currencies.
Ethereum is an an open-source, public, blockchain-based platform founded by a Russian-Canadian programmer Vitalik Buterin in 2015. Ethereum and its linked crypto token Ether were needed, argued Buterin, because Bitcoin had no scripting language that allowed for application development. Ethereum is different to Bitcoin in that it is an open-source decentralized application (dApp) platform rather than a straight out currency or store of value.
The SEC ruling on the dAPP saw markets react positively, after a week of heavy losses. Ethereum jumped just under 10% on the news, raising its price from $470 to $520 according to analytics website coinmarketcap.com. On the week, however, the price of Ether has followed that of Bitcoin downwards, losing about 14% from $600 this time last week. Monthly losses for Ethereum have been twice as bad with a fall of almost 30% from $730 this time last month.
Ethereum and crypto markets are still bearish and in decline from their all-time highs just after New Year. There are many hoping that they are approaching the bottom.
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