PROOF-OF-STAKE CRYPTOCURRENCIES COULD BE SUBJECT TO SECURITIES LAWS: SEC CHAIR GARY GENSLER
Ethereum's upgrade to proof-of-stake may have put the cryptocurrency back in the sights of the Securities and Exchange Commission (SEC).
Speaking to reporters after the Senate Banking Committee on September 15, SEC Chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to "bet" their crypto can be defined as a security under the Howey test, according to The Wall Street Journal.
"From the perspective of the coin [...] this is another indication that under the Howey test, the investing public expects profits based on the efforts of others," Gensler said, according to the WSJ.
The comments came on the same day as Ethereum (ETH) transitioned to proof-of-stake (PoS), which means the network will no longer rely on energy-intensive "proof-of-work" mining and instead allows validators to verify transactions. and create new blocks in a process that involves "staking out".
Gensler said that allowing holders to stake coins results in "the investing public expecting profits based on the efforts of others."
Gensler went on to say that brokers who offer betting services to their customers "look very similar - with some changes in labeling - to lending".
The SEC has previously stated that it does not consider ETH to be a security, while both the Commodity Futures Trading Commission (CFTC) and the SEC agree that it behaved more like a commodity.
The SEC is keeping a close eye on the crypto space, especially those it deems to be securities. The regulator was embroiled in a case against Ripple Labs regarding the launch of the XRP token.
The SEC has also called on firms offering cryptocurrency lending products to register with them, including a $100 million fine levied against BlockFi in February for failing to register high-yield accounts that the SEC considers securities.
Gabor Gurbacs, director of digital asset strategy at U.S. investment firm VanEck, tweeted to his 49,300 followers that he has been saying for more than six years that "POW to POS transitions may attract regulatory attention."
Gurbacs further clarified that regulators refer to wagering rewards as dividends, a feature of the Howey test.
The Howey Test refers to a 1946 Supreme Court case where the court determined whether a transaction qualified as an investment contract. If so, then it would be considered a security and subject to the Securities Act of 1933.