Republicans on the House Financial Services Committee and the House Committee on Agriculture are demanding that the Securities and Exchange Commission (SEC) clarify whether Ether (ETH—Ethereum) is a security or something else.
In recent years, the SEC has publicly stated ETH is not a security. While the SEC has been vocal that Bitcoin (BTC) is NOT a security, it has claimed that all other cryptocurrencies are to be treated as securities.
This most recent request for clarification is said to be due to Prometheum’s announcement that its subsidiary, Prometheum Capital, will provide custody services for ETH. Committee members have sent a letter to the Chairman of the SEC, Gary Gensler, pressing him on the question.
In 2023, Prometheum received approval from the Financial Industry Regulatory Authority (FINRA) to operate as a special-purpose broker-dealer (SPBD) for digital asset securities.
The Representatives are demanding that the SEC address the Special Purpose Broker Dealer’s (SPBD) ability to custody non-security digital assets, the SEC’s willingness to address SPBD non-compliance, the regulatory classification of ETH, and the SEC’s position regarding Prometheum’s announcement.
Also today, the CFTC issued an enforcement action against KuCoin, a large crypto exchange, claiming that several digital assets—including Ether—are commodities. In the letter, the Representatives said they are concerned about the SEC’s lack of transparency and its failure to address Prometheum’s intent to custody ETH—even when the CFTC states this is a commodity.
“We urge you to clarify the SEC’s position with respect to a SPBD’s ability to custody non-securities, willingness to address SPBD non-compliance, regulatory classification of ETH, and position regarding Prometheum’s announcement.”
The letter states:
“Despite your insistence that most digital assets are ‘digital asset securities,’ that term continues to be undefined. Other regulators, intermediaries, and market participants disagree with your assertions, and have struggled to identify which digital assets are digital asset securities. Moreover, the SEC’s failure to propose a rule or provide comprehensive guidance that provides clear rules for the digital asset marketplace regarding asset classification has only exacerbated the uncertainty in the digital asset ecosystem. Compounding the uncertainty, the SEC has engaged in multiple enforcement actions, accusing certain digital asset trading platforms of failing to register as brokers, clearing agencies, and national securities exchanges (NSE) because they are transacting in digital asset securities. Despite this history recognizing ETH as a non-security digital asset, you have consistently refused to acknowledge that ETH is not a security. In your March 2023 testimony before the House Committee on Financial Services you declined to answer multiple questions about whether ETH should be considered a commodity. Your unwillingness to clarify the treatment of ETH only exacerbates the confusion and uncertainty regarding ETH’s classification as demonstrated by the Prometheum announcement.”
Under the leadership of Chairman Gensler, the Commission has floundered in its claim that all digital assets are securities while not providing bright line rules. When Chairman Gensler was approved by the Senate to run the SEC, many Senators expected him to lead the charge of defining crypto regulations, instead he has “regulated by enforcement” and failed to clarify aspects of the crypto industry that now operate in an opaque envirement.
While the SEC has fallen short, it should be pointed out that Congress has tried, and failed to write get legislation approved that may also ameliorate the crypto confustion.
The Republicans add that the lack of clarity of ETH may “cascade throughout the digital asset marketplace both in the short and long term.”