This post will talk about “events that happened” since June 14, 2018 when the SEC came out and officially declared Ethereum's Ether token (ETH) is not going to be classified as a security within the current SEC guidelines.
Let’s clarify the different between a pre-token ICO and the coin itself for the basis of understanding. As Gary the former chairman of the CFTC, stated recently at a conference for MIT Technology Review Business of Blockchain Conference, Ether may have been classified as a security but it’s not. The message sent was highly important; uncertainty abounds because of the flexibility and nature of the Howey test, which the SEC will use to put different coins into classification for various investments contracted to turn Ether into a viable security.
They believe on one side that Ether as it exists today can in no way be called a security. As for Gensler, himself has made a suggestion as to why this would be the actual case when it is distinguished between the Ethereum Foundation in 2014 and as for the Foundation as well as the Ethereum Network Collectively.
The efforts rely strongly on the promoters handling the key aspects related to the Howey test. In most recent token presales, there has been a strong push for issuers and possibly the Foundation in 2014, to fit more closely into the bill. But as of today, the true value of Ether and its functionality along with Ethereum’s network is in no way reliable on the Foundation. Instead it transpires from the various efforts of literally thousands of different unaffiliated developers, miners and even users.
The total decentralized nature of Bitcoin as well as other Altcoins is hard to distinguish from each other on several levels. Gensler then suggested is almost certain that it will never be a security for the exact reason that has been discussed. There is no discernable way a third party with no common enterprise on which is relied can be looked upon for any expectation of profits.
And as was said before, it’s also possible for a useful decentralized coin to not be declared a security. Even if it is originally done in a pre-sale way or ICO that qualifies it for security insurance, it won’t be according to Gensler. There has been much confusion due to the law and its complicated way of being handled, as well as the community keeping it in tact through adopting less than useful or accurate terminology or using it without precise methods.
Any securities made are basically legal relationships issued between sellers and investors. Any securities are not paper trails on what a contract or other legal relationship is written. Neither are the securities or spreadsheets entered that demark the fractional ownership of an entity; or are securities any of the common zeros and ones typically arranged or represented for a specific deal. Securities are assets that are collected from random investment deals: just because Apple uses invested capital to produce iPhones doesn’t necessarily declared that iPhones are securities either.
Also, decentralized coins themselves, like Ether, isn’t a security, no matter how they were originally sold, or the capital was accumulated or raised to create the coin. Plus, any security is the basic contractual relationship between the seller and investors, with nothing more than that. After this is out of the way, the other things said about the contractual relationships that surrounded Ether’s development as well as original distribution is still in question because of other relationships made in the industry today.
Even though, if the initial agreement for development and distribution of Ether is security, Ether itself, even though once considered a real coin people could actually hold, was not a security then and is still not today. The coin is very distinct from any agreements which were previously used to fund the token’s development. And while the agreement may not fit the test for securities, the coin doesn’t either. There are several reasons why.
For One, Spreadsheet vs. Blockchain
The now presale-rights that were evidenced through various private records, also kept by the Ethereum Foundation. Real coin ownership is again proven on the powerful Ethereum Blockchain.
Use vs. Profit
Any presale rights are exclusively used for a marker on future valued capital in possession to the holder. Ether, as it always has been being a clear marker for future values for the positive peer-to-peer currency related transactions. Like those paying for Ethereum’s use on virtual hardware, also as a type of reward for different miners who use or operate the system.
The Many vs. Reliant On The Few
As for pre-sale terms, recording all transactions and promised efforts that are put forth by the foundation are completely dependent on several smaller individuals doing their work accurately. The running of Ethereum’s Network with continued vitality is totally relying hundreds or thousands of independently run software developers, and even thousands of independent nodes, plus millions and millions of users.
In short, apart from other investments made or contracted, that may not have been around prior to Ethereum or its conception is to useful as well as decentralized for it to be used for different relevant tests for being treated as a security. Conflating the pre-sale as well as running of the network is typically confused analytics which could possibly be the major misunderstanding the technology or the legal issues or both.
To really push it home, the facts we need to look at, case of Howey, from which they get the court-ordered laws that it is all based on, has been used to make some small and large changes. Like stated before, Mr. Howey convinces other users people to donate money for land Florida; he basically says they own the land and he will maintain the orange trees that cultivate the land.
However, instead of promising to pay investors with the profits from selling oranges at the market, he promises to give them oranges. This in fact doesn’t change the outcome how Howey – the courts still find the investment contracts for other orange groves in Florida that have been sold. But of course, the oranges themselves could still be found to be securities.
If one of the resultant oranges ends up in a grocery store, you don’t need a broker dealer to buy it for you. Most people instinctively understand this with tangible items like oranges, as well as other objects that are physical and scarce. But when it comes to inert objects being held in someone’s hand, they are not a security – they are only things. However, many haven’t even internalized yet how scare digital things that exist today as well will still hold the same reasoning.
So What Has Happened Since Ethereum's Fortunate Ruling?
Not much. In fact, not good. Since the June 14th outcome, Ethereum has been trading as high as $541 with a marketcap of almost $54 billion and today it is currently trading at $411 with a market cap of $41 billion.
Why the downturn despite the favorable outcome that many crypto enthusiasts worried about for such a long time?
While it is likely not one specific factor or outcome, and if you look at Ethereum's three year birthday from its inception and are playing the long game things look solid, but many of Ethereum's advancements and innovations seem to be slated to go live in 2019 if not 2020. OmiseGO CEO was recently talking about 2020 being the year Ethereum scales to the moon but are crypto bag hodlers willing to wait that long?
In the meantime, we recommend checking out some related posts that will surely spike your Ethereum enthusiasm despite the downward trending cycle ETH is currently experiencing: