SEC Chair Warns That Merge Update Might Turn ETH Into A Security

While the world was watching the Ethereum blockchain undergo the most important transition to Proof-of-Stake (PoS) on Thursday, SEC chair Gary Gensler also had all ears to the developments.

Soon after the Merge event on Thursday, September 15, SEC chair Gary Gensler said that crypto assets and intermediaries that allow users to “stake” will have to pass the Howey Test to determine whether that asset is a security or not. The Howey test determines whether the investors expect a return from the work of third parties.

After the Congressional hearing on Thursday, the SEC chair told reporters: “From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others”.

However, Gensler said that he wasn’t referring to any cryptocurrency at this point. But the announcement coming soon post the Merge upgrade could ring some bells, as per the WSJ report.

The SEC has been quite clear on getting digital assets under securities laws, especially those cryptocurrencies sold with a promise of future profits.

What’s Up With Crypto Staking?

Even before Ethereum Merge, the Proof-of-Stake (PoS) model has been quite popular with crypto staking as a way to verify blockchain transactions.

The SEC chair said that in the case the crypto exchange offers stake services to its customers, it “looks very similar—with some changes of labeling—to lending”. Mr. Gensler has been repeatedly stating that firms that offer crypto lending products need to register with the agency.

However, the crypto bill by the agricultural committee last month notes that both Bitcoin and Ethereum shall be treated as commodities. Earlier this month, a report came that the CFTC would be looking after crypto exchanges operating in the country, and Mr. Gensler was ok with it. However, the CFTC would need additional infrastructure and tools to properly regulate the crypto market.