On Friday (September 16), Jake Chervinsky, Executive Vice President and Head of Policy at Blockchain Association, reacted to Bitcoin maxis, such as Michael Saylor, seemingly celebrating the fact that Ethereum\u2019s Merge upgrade may have made $ETH more of a target for the U.S. Securities and Exchange Commission (SEC).<\/p>\n
On Thursday (September 15), the day that Ethereum completed its Merge upgrade, i.e. its transition from proof-of-work (PoW) to proof-of-stake (PoS), Michael Saylor, Co-Founder and Executive Chairman of business intelligence software company\u00a0MicroStrategy Inc.\u00a0(NASDAQ: MSTR), implied that $ETH could get classified as a security (rather than a commodity) by the U.S. Securities and Exchange Commission (SEC).<\/p>\n
After Ethereum\u2019s Merge upgrade was completed in the early hours of September 15, several influential Bitcoin maxis expressed their reaction to this event.<\/p>\n
Saylor, who is a Bitcoin maxi (i.e. believes that \u2014 with the exception of fiat-backed stablecoins such as Tether ($USDT) \u2014 Bitcoin is the only legitimate cryptocurrency), sent out a tweet in response to comments by SEC Chair Gary Gensler\u2019s most recent comment on PoS cryptocurrencies that suggested he expects the SEC to eventually declare that $ETH is a security (unlike $BTC which they have publicly called a commodity and therefore not subject to U.S. securities laws).<\/p>\n
The Wall Street Journal (WSJ)\u00a0report\u00a0that Saylor was referring to in his tweet says that \u201cEthereum\u2019s big software update on Thursday may have turned the second-largest cryptocurrency into a security\u201d in the eyes of the SEC. According to the WSJ report, although Gensler did not specifically mention Ethereum, he said yesterday that the native assets of PoS blockchains could pass the\u00a0Howey Test\u00a0since it was possible to view staking as an \u201cinvestment contract\u201d because \u201cthe investing public is anticipating profits based on the efforts of others.\u201d<\/p>\n
Here is how Investopedia explains the Howey Test:<\/p>\n
\u201cThe Howey Test refers to the U.S. Supreme Court case for determining whether a transaction qualifies as an \u2018investment contract,\u2019 and therefore would be considered a security and subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. Under the Howey Test, an investment contract exists if there is an \u2018investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.\u2019<\/em>\u201c<\/p>\n Earlier today, Chervinsky, who was General Council at Compound Labs before joining the Washington, D.C. based Blockchain Association, which represents \u201cthe reputable leaders of the US blockchain and cryptocurrency industry\u201d, took to Twitter to defend Ethereum\u2019s move to PoS consensus by explaining why despite what some people may think why the Merge has not turned $ETH from a commodity to a security. <\/p>\n Chervinsky went on to say:<\/p>\n \u201cThe general idea seems to be \u2018if you squint hard enough, staking sort of looks like a dividend or interest, & some actual securities have those, so maybe staked assets are securities too.\u2019 That\u2019s not how the law works. That just means holders of staked assets expect profit\u2026 <\/em><\/p>\n