The U.S Securities and Exchange Commission (SEC) has provided insight regarding the classification of Ethereum as a security, which could spell bad news for the platform’s planned ETFs. According to a report, the SEC’s division of investment management highlighted the risks of investing in Bitcoin and Ethereum. They cited concerns over the lack of regulation and potential for manipulation in the market. Furthermore, they stated that the nature of Ethereum’s network upgrade (Ethereum 2.0) could potentially classify it as a security, which could have significant regulatory implications.
The Ethereum 2.0 upgrade aims to shift Ethereum’s current consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS). However, the SEC argues that the staking mechanism could be seen as a common enterprise where investors seek to profit off others’ efforts, a classification that falls under the Howey Test for securities. If Ethereum is classified as a security, it could negatively impact Ethereum ETFs, as they would then face much stricter regulations and higher costs. This development indicates a potentially challenging road ahead for Ethereum and the crypto industry at large.
