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Gensler has ‘sown confusion’ over Ether as security debate — GOP lawmakers

source-logo  cryptobriefing.com 27 March 2024 11:54, UTC

Two GOP-led House committees seek to demand clarity from the Securities and Exchange Commission (SEC), specifically chair Gary Gensler’s position on Ether (ETH) as a security.

The House Financial Services Committee head, Rep. Patrick McHenry, and House Agriculture Committee Rep. Glenn “GT” Thompson released a press statement to query Gensler over the regulator’s overdue stance on Ethereum.

These actions came after Prometheum announced last February that it would begin offering custodial services to institutional clients for Ether. Prometheum will work on this offering through its subsidiary, Prometheum Capital, despite the SEC and CFTC recognizing ETH as a non-security digital asset.

“Your unwillingness to clarify the treatment of ETH only exacerbates the confusion and uncertainty regarding ETH’s classification […]” the lawmakers said.

The SEC’s longstanding ambiguity on whether ETH is a security has further fueled the uncertainty surrounding this issue. The SEC has rather famously withheld defining Ethereum, in contrast with other cryptocurrencies. Now, the regulator might be pressured to actually define Ethereum, which will have broad effects on the cryptocurrency industry in the U.S.

Ether as security: key contentions

The letter indicates that Republican members of the House Committee on Agriculture and the House Financial Services Committee are pressing SEC Chair Gary Gensler for clarification on the SEC’s stance on the custody of non-security digital assets by a Special Purpose Broker-Dealer (SPBD).

The solons are highlighting a contradiction in the SEC’s approach, noting that its current regulatory framework does not allow an SPBD to custody non-security digital assets, which could have significant implications for the digital asset markets if Prometheum were to proceed with its plans. The lawmakers express concern about the lack of transparency and definitive guidance from the SEC, pointing out that the term “digital asset securities” remains undefined, causing confusion among other regulators, intermediaries, and market participants.

The statements also address the SEC’s enforcement actions against digital asset trading platforms for failing to register as brokers or clearing agencies due to transactions involving what the SEC considers digital asset securities. The lawmakers are requesting a clear definition of digital asset securities and the classification of Ether, indicating that the SEC’s lack of clarity has only increased uncertainty within the digital asset ecosystem.

The GOP representatives are criticizing Chair Gensler’s reluctance to categorically state that ETH is not a security, especially since he did not provide clear answers in his March 2023 testimony before the House Committee on Financial Services when asked whether Ether should be classified as a commodity. They are stressing the urgency for Gensler and the SEC to provide clarity on its position regarding digital asset securities, especially in light of the historical context of Ether being recognized as a non-security asset.

While the CFTC views ETH as falling under its commodities jurisdiction, the SEC’s stance has remained unclear, especially after Ethereum’s transition to a proof-of-stake consensus mechanism.

Established in 2017, Prometheum is a blockchain-based financial marketplace and an SEC-registered alternative trading system (ATS) operator. It aims to facilitate the issuance, trading, and settlement of digital securities, including tokenized assets, in compliance with securities regulations. Prometheum received its SPDB license from the SEC last year, a development that did not escape scrutiny and skepticism from the crypto community.

This latest debacle over ETH’s classification and Prometheum’s custody plans simply shows the challenges and uncertainties surrounding crypto regulation in the U.S brought about by the SEC and its approach towards the crypto sector. Along with the other pressing issue of Ethereum ETFs, this move by GOP congressmen just might give fresh impetus the regulatory debate and set a precedent for the SEC.