$ETH: Blockchain Association’s Head of Policy Says Merger ‘Was a Significantly Mock Event’
On Friday (September 16), Jake Chervinsky, Executive Vice President and Head of Policy at the Blockchain Association, responded to Bitcoin maxis like Michael Saylor seemingly celebrating the fact that Ethereum’s Merge upgrade may have made $ETH more of a target for the US Securities and Exchange Commission (SEC).
On Thursday (September 15), the day Ethereum completed its Merge upgrade, i.e. the transition from proof-of-work (PoW) to proof-of-stake (PoS), Michael Saylor, co-founder and executive chairman of business intelligence software company MicroStrategy Inc. (NASDAQ: MSTR), suggested that $ETH could be classified as a security (rather than a commodity) by the US Securities and Exchange Commission (SEC).
After Ethereum’s Merge upgrade was completed early on September 15, several influential Bitcoin maxis expressed their reaction to this event.
Saylor, who is a Bitcoin maxi (ie believes that – with the exception of fiat-backed stablecoins like Tether ($USDT) – Bitcoin is the only legitimate cryptocurrency), sent out a tweet in response to comments from SEC Chairman Gary Gensler’s most recent comment on PoS cryptocurrencies that suggested he expects the SEC to eventually declare $ETH a security (as opposed to $BTC which they have publicly called a commodity and therefore not subject to US securities laws).
The Wall Street Journal (WSJ) report that Saylor referenced in his tweet says that “Ethereum’s big software update on Thursday may have made the second-largest cryptocurrency worthless” in the eyes of the SEC. According to the WSJ report, although Gensler did not specifically mention Ethereum, he said yesterday that the native assets of PoS blockchains could pass the Howey test since it was possible to view stakes as an “investment contract” because “the investment public expects profits based on the efforts of others.”
Here’s how Investopedia explains the Howey test:
“The Howey test refers to US Supreme Court case law to determine whether a transaction qualifies as an “investment contract” and therefore would be considered a security and subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. Under The Howey Test An investment contract exists if it is an “investment of money in a joint venture with a reasonable expectation of profit from the efforts of others.”“
Earlier today, Chervinsky, who was General Council at Compound Labs before joining the Washington, DC-based Blockchain Association, which represents “the recognized leaders of the US blockchain and cryptocurrency industry,” took to Twitter to defend Ethereum’s move to PoS consensus by explaining why despite what some may think why the merger has not turned $ETH from a commodity to a value.
Chervinsky went on to say:
“The general idea seems to be “if you squint hard enough, staking looks like dividends or interest, and some actual securities do, so maybe assets staked are securities too.” That’s not how the law works. It just means that owners of assets that are staked expect profits…
“which alone does not make the assets securities. Expectation of profit is only one of four Howey test points and probably the least important for volatile assets (ie non-stable coins). People have all kinds of assets with an expectation of profit. Gold, cars, watches etc.
“In other words, the expectation of profit is a feature of all investable commodities, not just securities. Whether the profit comes in the form of an increase in the market price, a stake reward or any other mechanism should make no difference to the securities analysis.“
A short time later, he went even further, suggesting that rather than the merger being a mistake, it is a win for Ethereum since it reduces the chance that the SEC will classify $ETH as a security:
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