The release of the Hinman papers last week in the U.S. Securities and Exchange Commission’s (SEC) case against Ripple is a boost to ether (ETH), and is likely to trigger a move to more decentralization in the crypto market, JPMorgan (JPM) said in a research report Thursday.
Senior leadership at the SEC did not rank ether as a security in 2018, the report noted, and SEC officials acknowledged that the “fact that tokens on a sufficiently decentralized network are no longer securities creates a regulatory gap.”
“The speech acknowledges that there is an other category,” analysts led by Nikolaos Panigirtzoglou wrote, adding that “it is not a security because there is no controlling group (at least in the Howey sense) yet there may be a need for regulation to protect purchasers.”
Panigirtzoglou was referring to the Howey Test, which is used to determine which transactions qualify as investment contracts and thus subject to U.S. securities laws. An asset can be classed as a security if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others.
JPMorgan says these revelations could explain why the regulator has not taken action against ether while targeting other crypto tokens this year.
“The Hinman documents are likely to influence the direction of the current U.S. congressional effort to regulate the crypto industry in a way that ether would avoid being designated as a security,” the analysts wrote.
The easiest solution for Congress would be to put ether in the same category as bitcoin (BTC), and regulate it as a commodity under the oversight of the Commodity Futures Trading Commission (CFTC).
A new “other category” could be introduced specific to ether and other cryptocurrencies that are decentralized enough to avoid being classed as securities, the bank said, adding that the “more decentralized a cryptocurrency is the higher its chance that it would avoid being designated as a security.”
The Hinman documents will probably intensify the race among major cryptocurrencies to become more decentralized and look more like ether, the report said.
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