Gary Gensler hints Ethereum Merge could classify ETH as a security

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The United States Security and Exchange Commission Chairman Gary Gensler commented on the recently long-awaited The Merge in the Ethereum network, which saw the network switch from proof-of-work to proof-of-stake. Gensler hinted that the upgrade would be sufficient to move ETH from its present legal classification into that of securities.

Ethereum could soon classify as a security

Ethereum was not a security, despite the fact that its value was dependent on proof-of-work, a point of contention frequently raised by Ripple in their own legal struggle with the SEC.

In contrast, staking, which requires the staker to make his own tokens inaccessible to him for a while in exchange for a return on investment, might be viewed as a “reasonable expectation of profit” now that the value of Ethereum is derived from proof-of-stake (PoS).

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The Howey Test states that a transaction becomes an investment contract if money is “invested in a common enterprise with a reasonable expectation of profit to be derived from the efforts of others.” The Howey Test is named after a seminal 1946 case that helped define what is considered a security and what is not.

A transaction is deemed to be an investment contract and must be registered with the SEC if it meets the Howey Test.

SEC Chair Gensler made Ethereum update-related statements while appearing before the Senate Banking Committee, which has authority over his agency. In this case, the coin would fall under the SEC’s control rather than the CFTC, which frequently oversees cryptocurrencies in the US as digital commodities.

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The SEC has made it plain that in order to function legally, cryptocurrency lending platforms must register with it. In the meantime, a bill that would give the CFTC more authority to regulate cryptocurrencies is now being reviewed by the US Senate for approval in the event of digital commodities without these services.

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