Is Ethereum really a security?
Neeraj Agrawal, the director of communications at Coin Center, disagreed with the New York Attorney General’s (NYAG) recent assessment of Ethereum as a security.
“Coin Center will monitor the matter, and if there is an opportunity to weigh in, we will.”
In support of this view, Agrawal linked a 2018 article arguing that there is a difference between “a token presale and the token itself.”
Current securities laws use the Howey test to determine whether a contract, arrangement or transaction meets the definition of a security. It focuses on resolving whether investors paid money into a joint venture with the expectation of profit from the efforts of others.
Although these rules date back to the 1930s, before computers and digital assets, specific cryptocurrencies and Initial Coin Offerings (ICOs) (or token pre-sales) have met the definition of an investment contract, according to regulators.
NYAG says Ethereum is a security
On March 9, NYAG, Letitia James, filed a lawsuit against Seychelles-based exchange KuCoin, citing concerns over “misrepresenting itself as an exchange.”
“Today’s action is the latest in our efforts to rein in shady cryptocurrency companies and bring order to the industry.”
James said she could trade cryptocurrencies on the New York Stock Exchange, but the entity was not registered with the state. Furthermore, AG added that users could buy and sell “popular virtual currencies, including ETH, LUNA and TerraUSD (UST), which are securities and commodities.”
Although the main theme of the lawsuit centered on KuCoin operating illegally in New York, James categorically singled out trading of securities on the platform as the basis for illegal operation, not just lack of registration.
This paves the way for Ethereum’s US security status to be decided in a court of law.
“This action is one of the first times a regulator has asserted in court that ETH, one of the largest cryptocurrencies available, is a security.”
The crypto community chimes in
Lawyer Jake Chervinsky dismissed James’ claims about Ethereum, saying the enforcement action is simply an unsubstantiated allegation, albeit one made by a regulator.
“Agencies are like any other plaintiff: they can write whatever they want in a complaint. It might get some pressure, but it doesn’t change anything.“
Corresponding Messari founder Ryan Selkis echoed Chervinsky’s comments, saying: “ETH is not a security.” However, Selkis did not give his reasoning, but only hinted at a coordinated attack against crypto, saying: administrative state is completely out of control.”
Meanwhile, as expected, Bitcoin maximalist Max Kaiser bucked the previous consensus, praising regulators for “finally doing their job.”
“ETH is obviously a security. Now the supervisory authorities are finally doing their job. Knock off this shocker, Gary!!!“
