Michael Saylor: Why Ethereum is ‘Obviously’ a Security
He was speaking on the Altcoin Daily YouTube channel, where co-host Aaron Arnold said that Senator Cynthia Lummis (R-Wyo), co-sponsor of the Responsible Financial Innovation Act, credits him with helping to define Ethereum as a commodity.
According to the bill, any digital token with sufficient decentralization, a somewhat opaque distinction, should be seen as a commodity and fall under the purview of the Commodities and Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC).
A commodity cannot be changed
A commodity’s characteristics cannot be changed, Saylor argues. Nor can it have an issuer. Gold cannot be changed to steel or aluminum based on a vote. Conversely, Ethereum’s initial coin offering, management team, and hard forks prove that it can be changed fundamentally.
A development team can agree on the software changes that need to be made to the network. Any changes to fix a fatal flaw are reasonable, Saylor argues, but changing the code in a way that fundamentally alters the value or issuance pattern of the currency means that the coin or token passes the Howey Test and is subject to securities law.
Securities must be sold subject to full and fair disclosure, including who owns the company and any risk factors.
Todd Phillips, the director of financial regulation at the liberal think tank Center for American Progress, agrees. He opines that most cryptocurrencies are securities and hence need to comply with customary securities laws. He said the Responsible Financial Innovation Act bill does not impose adequate disclosure rules important to potential investors.
His views agree with those of SEC Chair Gary Gensler, who has argued on multiple occasions that cryptocurrencies are securities. The federal agency has clamped down hard on crypto companies offering yield products without registering as a securities provider.
Saylor slammed crypto exchanges for providing what he deems to be unregistered securities and management teams of such companies for lacking a registration statement.
Bitcoin not a security because it doesn’t change, says Saylor
Bitcoin, Saylor argues, differs from a security in that there was no initial coin offering, nor does anyone want to change the network’s software. Suppose you are relying on the physics of the bitcoin network with its proof-of-stake consensus mechanism. In that case, there’s no need to keep upgrading the software.
The Responsible Financial Innovation Act classifies most cryptocurrencies as commodities, placing them under the Commodities and Futures Trading Commission, which regulates bitcoin futures contracts. The bill allows for rebuttals against the notion that a particular token is a security.
Republican Patrick T. McHenry (R-N.C.) believes that crypto assets are neither a commodity nor a security and has advocated for a third regulator to manage the space.
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