SEC chair Gary Gensler once again finds himself at the heart of a controversy. Gensler testified to the Senate Banking Committee regarding his stance on cryptocurrencies. During the hearing, Gensler revealed that the currencies using the Proof-of-stake model might be securities.
Ethereum, the second largest cryptocurrency, just underwent a merge that shifted its consensus mechanism to Proof-of-stake. Gensler recently called both Bitcoin and Ethereum a commodity and agreed that their enforcement should fall under the CFTC. However, in the recent hearing, he appears to have changed his stance again.
However, Jake Chervinsky, the head of policy at Blockchain Association, is correcting the record on the security vs. commodity debate for Ethereum.
Why Gensler Believes Ethereum Is A Security
Gary Gensler originally states that Bitcoin is the only cryptocurrency he is confident in calling a commodity. Recently, he included Ethereum into that criteria as well. However, it seems that he is reverting to his original stance after the merge.
Gensler’s testimony to the Senate Banking Committee reveals that cryptocurrencies dependent on the proof-of-stake mechanism can fall under the SEC. He believes that holders stake their currency in anticipation of profit, and therefore the cryptocurrency can be seen as an investment contract. If true, Ethereum can pass the Howey Test, which determines the assets that fall under Federal security law.
Since an Ethereum holder will make profits off the efforts of others, securities law will apply to Ethereum.
Why Gensler Is Incorrect In His Analysis
Jake Chervinsky of the Blockchain Association believes that Gensler’s analysis is incorrect. He highlights that people who understand securities law know that the merge does not make Ethereum appear more like a security.
Moreover, he also highlights that Ethereum is also a major derisking event, which is the exact opposite of Gensler’s views.
Senator Pat Toomey once again criticized SEC chair Gensler for not providing clarity on the security vs commodity debate.
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