Ethereum Under Potential SEC Scrutiny after The Merge: WSJ

blockchain.news:

Ethereum's latest software update may have caught the Securities and Exchange Commission (SEC) chair's attention to categorize the second-largest cryptocurrency as a security, according to a report from the Wall Street Journal (WSJ).

Chair Gary Gensler shared his comments hours after Ethereum's successful update, known as The Merge, which shifted its framework from proof of work to proof of stake.

According to the report, Gensler spoke about the Howey test, which is a test used by courts to determine if an asset is a security. He stated that cryptocurrencies and intermediaries that allow holders to “stake” their coins might have to pass that test.

Howey test also examines whether investors expect to earn a return from the work of third parties, according to the WSJ.

«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,» Gensler told reporters after a congressional hearing.

However, he did not provide firm clarity. According to the WSJ report, Gensler said he was not referring to any specific cryptocurrency.

Under the laws passed in the 1930s, securities — assets such as stocks and bonds — issuers must file extensive disclosures with the SEC. Exchanges and brokers conducting securities trading must comply with rules designed rigidly for the safety of investors to protect them from conflict of interest, according to the WSJ.

Currently, due to the undeterminable nature of cryptocurrencies, issuers and trading platforms face strict liabilities if they sell any assets that are deemed to be securities by the SEC or courts.

One way through which cryptocurrency networks — including Solana, Cardano and, as of this week, Ether —