Bitcoin is the biggest and most popular cryptocurrency, but the regulators have a little concern about this fact. Their focus is on other digital coins which, in the opinion of the regulators, are more like securities and have to be subjected to appropriate regulation.
This is mainly the case with Ethereum – cryptocurrency, which has so far managed to stay out of sight of commissions, boards and agencies. But now they have come to the conclusion that the second largest cryptocurrencyin the world, with a market capitalization of more than $ 75 billion must follow the same rules as are applied to the shares.
Regulators look for familiar features in cryptocurrencies
The federal authorities regulating the trade of securities and raw material assets have carried out a research. They wanted to find out how much virtual currency creators affect their value, and whether this relationship is comparable to how the companies' strategies, financial indicators and management comments affect the dynamics of their stocks.
Some regulators consider Ethereum to be in a“grey zone”, and there is a suspicion that it was created as a result of illegal sale of securities in 2014. Within the framework of the Securities and Exchange Act of the US, companies must register such transactions with the SEC when issuing shares and bonds, as well as must provide the investors with complete information and warn them about all possible risks or offer these shares and bonds only to institutional investors and investors with large capital. Ethereum did not register the sales during the release in 2014, but the coins were sold to anyone who wanted to buy them.
Last week, the former CFTC chairman Gary Gensler announced that the cryptocurrencies, like ETH and XRP, are illegal securities.
The decision of the regulator to classify Ethereum as a security will provoke massive sales and cause major problems for exchanges, like Coinbase, which allows investors to buy and sell Ether without any restrictions. We remind you that Coinbase wants to receive a SEC broker licence, but this means that the problem concerning Ether may soon be on its agenda, as brokers cannot operate with unregistered securities.
The creators of cryptocurrency and even some industry lawyers are confused. They are dissatisfied with the fact that the SEC wants to include Ether, representing the assets of a new generation, in its outdated rules and standards.
Ether under the microscope
The regulators have figured out that the price dynamics of Ethereum is affected by major players, such as the Ethereum Foundation, who have created and are now responsible for the functioning and updating of the software. For example, the company pays bonuses to the programmers for eliminating vulnerabilities in the Ether code, thus providing improvements which can increase the value of cryptocurrency.
The government also examines other factors which provoke price fluctuations, while some of them contradict Ether as a security theory. For example, the government is investigating the dependency of the demand on the activities of the people who use Ether to launch attachments on this platform.
During the release in 2014, the company issued approximately 60 million coins and attracted 31 thousand bitcoins, or 18.3 million dollars. Meanwhile, the company attracted in such a way the funding for the creation of the Ethereum platform, while investors, possibly, bought the coins with an estimate that their value would increase when the product is ready, which is typical for the securities. One representative from the regulatory authorities has indicated that, in the light of all these factors, it is still in the “grey zone”. On 7 May, a meeting of the working group on this issue is planned, where the SEC and CFTC officials will meet.
Ethereum Foundation claims that it owns less than 1% of the total volume of the coins in circulation and its demand and supply are not controlled.
The supporters of Ether, including Andreessen Horowitz, do not support this approach, pointing out that no one controls the value of Ether – neither people nor companies. They argue that the functions of cryptocurrencygo beyond the limits of the traditional trading instruments.
Cryptocurrency is paid to the people who provide the implementation of the entire decentralized project by operating their software on their computers.
At the end of March, a group of venture capital companies, including the Andreessen Union Square Ventures Fund, sent a petition to the SEC with a proposal to make an exception for Ether as it has become so decentralized that it cannot be considered a security.
The experts of this branch argue that Ether-like virtual currencies become transformed into consumer products as soon as the project starts functioning. In other words, calculations are made and currencies are generated by the programmers all around the world, and not by the company and its management. Henseler indicated that there is no legal precedent for such a case. According to the opinion of Peter Van Valkenburgh, the director of the Coin Research Centre, by adding Ether to securities, the United States will destroy its innovative policy and cause a lot of useless barriers.