Ethereum’s upgrade to proof-of-stake may have put the cryptocurrency in the crosshairs of the Securities and Exchange Commission (SEC).
Speaking to reporters after Senate Banking Committee 15, SEC Chairman Gary Gensler said cryptocurrencies and intermediaries that allow holders to “share” their cryptocurrencies could qualify as securities under the Hawaii test, The Wall Street Journal reported.
“From the point of view of the coin […] This is another indication that the community investing in Hawaii’s challenge expects returns based on the efforts of others, WSJ Gensler reports.
The comments came on the day Ethereum (ETH) transitioned to proof-of-stake (PoS), meaning the network no longer relies on energy-intensive “proof-of-work” mining and instead allows validators to verify transactions. And create new blocks in a process that involves “stopping”.
According to Gensler, allowing holders to share coins “ensures public profits based on the efforts of others.”
Gensler went on to say that intermediaries that provide stock services to their clients “look very similar to a lender – with some changes to the label.”
The SEC has previously stated that it does not view ETH as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acts more like a commodity.
The SEC has been keeping tabs on the crypto space, specifically what it accuses of being securities. The regulator has filed a lawsuit against Ripple Labs regarding the launch of the XRP token.
The SEC has also pressured firms that offer crypto-lending products to register what they consider to be securities of high-yielding interest-bearing accounts, including the $100 million fine imposed on BlockFi in February.
“The transition from POW to POS is likely to attract regulatory attention,” Gabor Gurbach, director of digital assets strategy at US investment firm VanEck, told his 49,300 followers on Twitter over six years ago.
To be clear, I’m not saying that ETH is necessarily a security because of its proof-of-concept model, but regulators are talking about inclusion in the context of dividends as one aspect of security rules that they call “common enterprise.” There are other factors in Hawaii’s challenge.
— Gabor Gurbacs (@gaborgurbacs) September 15, 2022
Gurbacs continued that regulators refer to stock awards as fractions, which is characteristic of the Hawaii test.
Related: Crypto developers must work with the SEC to find a consensus
The Hawaii test refers to a 1946 Supreme Court case in which the court determined whether a transaction qualifies as an investment contract. If this is the case, it is considered a security and is covered by the Securities Act of 1933.