As the landscape of digital currency continues to evolve, it’s become apparent that the Securities and Exchange Commission (SEC) and other U.S. governing bodies are keen to redefine how the government regulates crypto. Yet, from the SEC suing Binance and Coinbase to the GOP calling for SEC restructuring, a clear path forward still seems a far way off.
Now, as if only to add the convolution taking the blockchain industry by storm, a team of JPMorgan strategists led by Nikolaos Panigirtzoglou have proposed that Congress place Ethereum (ETH) under a new “other category” instead of under the rigid labels that the SEC is currently proposing for MATIC, SOL, ALGO, and the like.
Ethereum as an “other”
For several years, the crypto sphere has wrestled with the classification conundrum, with the recent Binance and Coinbase lawsuits only magnifying the debate. Amidst this legal tumult, strategists suggest that a potential “other category” could ensure that Ethereum and similarly decentralized cryptocurrencies skirt the designation of securities.
This proposal emerges in light of the “Hinman documents,” a series of correspondence recently released as part of the ongoing SEC-Ripple lawsuit. Named after Bill Hinman, the former SEC Director of Corporation Finance, these documents revisit his 2018 speech wherein he posited that ETH, due to its “sufficiently decentralized” nature, was not a security.
Although these documents incited criticism, they have since illuminated potential gaps in current regulations that the proposed “other category” might address.
According to the aforementioned JPMorgan strategists, the “other category” would impose more restrictions and offer more investor protections than what’s currently laid out for commodities but would still be less burdensome than those required for securities. Such classification would potentially safeguard investors without the harsh implications of being categorized as a security.
However, this suggested reclassification does not come without its uncertainties. Some SEC officials, including Chairman Gary Gensler, have remained tight-lipped about Ethereum’s status, even as the Hinman documents reignite debates. Gensler previously indicated that all cryptocurrencies, sans Bitcoin, could be considered securities.
Gensler in @NYMag on crypto:
-everything is a security except bitcoin
-every company out there is in violation
-crypto is pointless but blockchain is kinda neat
Hard to argue you’re acting in good faith if admittedly trying to stamp out an entire industry. pic.twitter.com/Ozw8ZJ3ETO
— Alexander Grieve (@AlexanderGrieve) February 26, 2023
"Three quarters of the market is non-securities, it's just a commodity, a cash crypto."
– Gary Gensler pic.twitter.com/cbGWtxa8CH
— The Wolf Of All Streets (@scottmelker) June 13, 2023
JPMorgan strategists suggest that the uncertainty and discussions emerging from these documents could reveal the reasoning behind the SEC’s inaction against Ethereum, even as it takes action against a bevy of competitor tokens, including those widely considered to be game or metaverse tokens.
The strategists concluded that Ethereum stands to gain from these regulatory discussions. While the implications for Ripple’s case remain unclear, a successful fair notice argument on Ripple’s part could significantly impact future SEC enforcements and the broader crypto regulatory landscape.
As cryptocurrency evolves and draws increased attention from regulatory bodies, the suggestion of an “other category” underscores the need for flexible and nuanced legislative measures. However, whether Congress will indeed carve out this new category for Ethereum remains to be seen.