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Ethereum, the world’s second-largest cryptocurrency by market capitalisation, is reportedly coming under regulatory scrutiny.
The Wall Street Journal recently revealed that both US commodities and securities watchdogs are questioning whether the same rules for stocks should apply to cryptocurrencies.
Ether, which has around a $65 billion market cap, fell six percent soon after the story was published according to data from CoinMarketCap.com.
In response, Ethereum co-founder Joseph Lubin said that Ether is not a security and does not need to be regulated.
Details of Ethereum’s close scrutiny
So far, cryptocurrencies have not been part of the crackdowns carried out by the Securities and Exchange Commission this year.
However, there is growing concern that the founders of cryptocurrencies other than Bitcoin have control over their value. This practice would be similar to how managers might influence their company’s stock value based on strategy and investments.
Furthermore, the Wall Street Journal said that Ethereum’s creation in 2014 was “probably an illegal securities sale” in the eyes of some regulators, citing people familiar with the subject.
When it sold the first 60 million Ether, the Ethereum foundation raised more than 31,000 Bitcoin, which was worth around US$18.3 million at the time. But because investors were speculating that the launch would result in a rise in asset value, the deal was similar to a security.
Confusion over cryptocurrency definition
The fact that two federal regulatory agencies have applied different definitions to what a cryptocurrency is doesn’t help clarify whether Ethereum should be scrutinised or not.
The Commodity Futures Trading Commission has labelled cryptocurrencies as ‘commodities’, which means they are exempt from SEC regulation.
However, the SEC has said it considers cryptocurrencies to be securities and wants to apply laws to everything from exchanges to wallets.
Both SEC and CFTC officials will meet soon to discuss these definitions in further detail.
Response to Ethereum examination
At the Collision tech conference in New Orleans, Ethereum co-founder Joseph Lubin told TheStreet that when the cryptocurrency was initially established, he went to great lengths to ensure it could be bought by unregistered investors in the US.
“We spent a tremendous amount of time with lawyers in the US and in other countries, and are extremely comfortable that it is not a security; it never was a security,” Lubin said.
He also dismissed remarks by Gary Gensler, a former Commodities Futures Trading Commission (CFTC) chairman, that Ethereum was a non-compliant security.
Lubin went on to explain that he and his fellow co-founders have always considered Ethereum to be fuel for the wider platform’s progression.
“Because all these different actors are providing their resources to run the platform, you need to pay them for providing their resources,” Lubin said, noting that compensation comes in the form of a slice of Ethereum.
Silicon Valley venture capital firm Andreessen Horowitz also came out to say that no person or entity stands behind Ethereum’s token or value. It was also one of a group of venture capitalists that lobbied against the SEC defining all cryptocurrencies as securities in April.