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  • Writer's pictureJamal Saafir

JP Morgan Speculate That ETH May Be In A Category Of Its Own (NOT A Security)

Although regulatory clarity in the crypto market seems to be a ways away, one bit of promising projection is that Ethereum may find itself in a category of its own. Recently, the United States Securities and Exchange Commission (SEC) brought charges against the top leading crypto exchanges Binance and Coinbase for the unlawful sale of unregistered securities.

Along with the SEC’s reign of terror came the accusation of prominent cryptos in the top 100 being the unregistered securities sold and traded by the exchanges. Some of the cryptos mentioned as securities were Polygon, Solana, Cardano, and Decentraland.

As reported by The Block, according to JP Morgan strategists, the United States Congress could potentially categorize Ethereum (ETH) as a commodity alongside Bitcoin or place ETH into a new “other category” with less regulatory scrutiny than that of securities.

It is "possible that a new 'other category' is introduced specific to Ethereum and other cryptocurrencies that are decentralized enough cryptocurrencies to avoid being designated as securities," JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a note on Thursday. "This 'other category' that would involve more restrictions and investor protections than currently envisaged for commodities but less onerous than those required for securities."

These comments from JP Morgan followed the questioning of a documented 2018 speech by Bill Hinman, then director of the SEC's division of corporate finance, where Hinman stated that Ethereum was not a security due to Ethereum being a "sufficiently decentralized" blockchain network.

As reported by The Block, some SEC officials responded to the speech at the time, making known their concerns regarding ETH and its suggested “non security” status, saying “"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," the comment continued. "It's not a security because there's no 'controlling group' (at least in the Howey sense) yet, there may be a need for regulation to protect purchasers."

SEC Chairman Gary Gensler has been mocked for his long winded and stubborn refusal to say if Ethereum was a security or not during an April 2023 hearing while testifying before the House FInancial Services Committee. Gensler’s repeated response to the question of Ethereum being a security was, "It depends on the facts and the law".

In February 2023, Gensler confidently stated to New York Magazine that "everything other than Bitcoin" is a security. Gensler stated, “Everything other than Bitcoin, you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth.”

The “Hinman Documents” may be the saving grace for Ethereum in regards to it being labeled a security or not.

JP Morgan strategists stated that “the "Hinman documents" may explain why the SEC has been avoiding taking action against Ether while targeting this year almost all major competitor tokens.” They also added, "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 Ethereum would avoid being designated as security."

Guess we’ll all see what ETH is soon enough…

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