SEC chair Gary Gensler today didn't give an answer on whether or not Ethereum is a security—but he did say that if someone or something is raising money from the public, it could potentially meet the definition.
"We don't get involved in these types of public forums talking about any one project, one possible circumstance or give legal advice over the airwaves that way," he said on CNBC when asked whether Ethereum, the second biggest cryptocurrency by market cap, was a security.
He then added that if "you're raising money from the public and the public is in anticipation of profit, based upon that promotor, sponsor, that group's efforts, that's within the securities laws."
A security is a tradable financial asset that has monetary value—like stocks or bonds—that meets a specific legal definition as outlined by the so-called Howey Test. Under U.S. law, an asset meets the definition of a security if it is an investment of money in a common enterprise from which there is an expectation of profit based on that enterprise’s efforts.
The SEC previously said that it does not consider Bitcoin, the biggest cryptocurrency by market cap, to be a security but has weighed down on other cryptocurrencies, such as Ripple’s XRP. The SEC in December 2020 hit the creator of the eighth biggest digital asset by market cap with a $1.3 billion lawsuit—a case that is still ongoing.
Most crypto market participants have operated since at least June 2018 believing that the SEC likely does not consider Ethereum a security either, even though the asset was sold in 2014 through a public ICO sale that would today likely be considered an unregistered securities offering.
In June 2018, William Hinman, the former director of the SEC's Division of Corporation Finance, said that he believed Ethereum, since its sale, had become "sufficiently decentralized" and is now therefore not a security.
But the SEC of today, under Gary Gensler, might take a harder stance. The former investment banker, who once taught a blockchain and Bitcoin course at MIT, wants to stiffen the rules that govern the crypto market—and it has some in the crypto world sweating. For instance, Gensler has said that he believes thousands of cryptocurrencies in the Ethereum DeFi space—the world of peer-to-peer lending, borrowing and trading—are operating as unregistered securities.
In today's interview with CNBC, Gensler added that there needs to be basic regulation in place to protect investors from "lies and fraud" and that if the public is expecting a profit from an investment, they need to receive all proper legal disclosures.
Want to be a crypto expert? Get the best of Decrypt straight to your inbox.
Get the biggest crypto news stories + weekly roundups and more!
