On May 7, 2018, officials from the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) will gather as part of a working group to discuss the regulatory classification of Ether and other cryptocurrencies. It is not immediately apparent whether the chairmen of either agency will attend the Monday meeting, which was first reported by the Wall Street Journal. Spokespeople for the agencies have not yet disclosed if the meeting will be open to the public.
Especially in the last few months, the nature of Ether has been a hot topic. Is Ether a commodity? A security? Something else entirely?
Last week, at MIT’s Business of Blockchain Conference, ex-CFTC chairman Gary Gensler said, “There is a strong case for both of them [Ether and Ripple] — but particularly Ripple — that they are noncompliant securities.” The day after the New York Times published Gensler’s remarks, lobbyist group Coin Centerpublished a response from research director Peter Van Valkenburgh entitled “No, ether is not a security.”
Van Valkenburgh wrote that the advocacy center believes that Ether (“as it exists today”) doesn’t qualify as a security, and noted that “Gensler himself suggested why this could be the case when he distinguished between the Ethereum Foundation in 2014 and the Foundation and the Ethereum network, as a whole, today.”
Note: Interestingly, Van Valkenburgh did not address Ripple’s XRP in his post. Last Friday, ETHNews raised questions about the regulatory treatment of XRP.
English lawyer (and noted marmot superfan) Preston Byrne refuted Van Valkenburgh’s argument that Ether is decentralized. Byrne pointed to horizontal commonality in the Ethereum community, GitHub as a centralized repository, and the Ethereum Foundation’s 2014 presale.
It’s also worth considering Ethereum’s impending shift to a proof-of-stakevalidation system. Would the regulatory classification of Ether change if the network and its participants switch from proof-of-work to proof-of-stake? This is a giant question that few – if any – regulators have addressed publicly.
At present, the SEC possesses a working group focused on distributed ledger technology (DLT), while the CFTC has subcommittees dedicated to DLT and virtual currencies. It seems likely that members of these groups will be part of Monday’s discussion.