Is Ether (ETH) a Security? SEC and CFTC Reportedly formed a “Working Group” to Discuss Ethereum

The SEC And CFTC Have Reportedly Formed A “Working Group” To Discuss Whether Ether (ETH) Is A Security

Earlier this year, an article appeared in The Wall Street Journal featuring details of a “working group” between the SEC and CFTC. The two major US regulatory agencies were reportedly discussing whether or not Ethereum’s Ether (ETH) should be considered a security.

Ether is the world’s second largest cryptocurrency by market cap. Back in May 2018, The Wall Street Journal reported that Ether’s token sale was “under regulatory scrutiny” due to a “working group” formed between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). That working group was attempting to determine whether or not Ethereum’s initial sale of Ether constituted an unregistered security sale.

The SEC and CFTC seem to have acknowledged that bitcoin isn’t a security. Ether, however, is more of a question mark. While some experts claim ETH will never be declared a security, others feel that it might violate the Howey Test – a reference to the Supreme Court ruling that established guidelines for securities.

WhalePool Claims The “Working Group” Report Was Exaggerated

News of a working group between the SEC and CFTC has been heating up in recent weeks, with some suspecting that regulatory scrutiny has intensified over the summer. Nevertheless, not all agree with this claim.

Earlier today, WhalePool claimed to have spoken to a source at the SEC. That source told WhalePool that reports of a working group were “overstated, it was more of just phone calls.”

In other words, the SEC and CFTC weren’t sitting in an office all summer with a dedicated team of experts trying to determine if Ethereum was an unlicensed security seller. Instead, the two regulatory agencies were simply communicating back and forth over the security status of Ethereum – at least, if WhalePool’s source is to be believed.

The issue arises with the way in which Ethereum sold tokens in 2014. Ethereum held an initial coin offering (ICO) in 2014. The Ethereum Foundation sold tokens in exchange for bitcoin.

The Ethereum Foundation raised a total of 31,000 BTC during the token sale, worth about $18.3 million at the time. It was one of the world’s first ICOs. The Wall Street Journal’s report from earlier this year claims that the token sale may have been illegal. At the very least, the sale took place in a “gray zone” of US securities law.

The problem is the nature of the sale. The funds raised during the token sale were used to develop the Ethereum platform. Users contributed money to the token sale because they believed that the value of their ETH tokens would rise over time – through no contributions of their own. This type of investment system may violate the Howey Test, indicating that the Ethereum Foundation conducted an unregistered sale of securities.

That’s a problem for Ethereum. However, if WhalePool is to be believed, the SEC and CFTC aren’t overly concerned about Ethereum’s status as a security.

It was a bloody day for crypto markets, with Ethereum suffering more than most other cryptocurrencies. The price of Ether (ETH) is down 14.20% over the last 24 hours. Bitcoin’s price dropped “just” 5.44% over that same period. Other cryptocurrencies, including XRP (-11.53%), EOS (-16%), Bitcoin Cash (-13.14%) and Litecoin (-11.32%) experienced similarly dramatic drops – so it wasn’t just Ethereum taking a hit.

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