JPMorgan says Ethereum could be put into ‘other category’ by US Congress

Quick Take

  • U.S. lawmakers could put ether into a new “other category” to avoid classifying it as a security but to protect investors, according to JPMorgan strategists.
  • The comments come after the release of the “Hinman documents” earlier this week as part of an ongoing enforcement lawsuit against Ripple Labs by the SEC.

The United States Congress could either simply classify ether (ETH) in the same commodity category as bitcoin (BTC) or put it into a new "other category" with less burdensome regulations than securities, according to JPMorgan strategists.

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."

'Hinman documents'

JPMorgan's comments come after some U.S. Securities and Exchange Commission (SEC) officials questioned key details of a 2018 speech that said ETH isn't a security in documents released earlier this week as part of an ongoing enforcement lawsuit against Ripple Labs by the SEC. The speech was given by Bill Hinman, then director of the SEC's division of corporate finance, where he had mentioned that ETH is not a security with Ethereum being a "sufficiently decentralized" blockchain network.

Some SEC officials at the time had brought up concerns on the ETH mention in comments to the draft speech, the released documents showed. One comment, for instance, said that "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 recently refused to say whether ether was a security during a nearly five-hour hearing when he testified before the House Financial Services Committee. In February, Gensler told New York Magazine that "everything other than Bitcoin" is a security.

Ethereum boost

The release of the "Hinman documents" may explain why the SEC has been avoiding taking action against ether while targeting this year almost all major competitor tokens, JPMorgan strategists said.

"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," they added.

Overall, the release of the documents will benefit Ethereum, according to strategists. The documents "boost the Ethereum case to avoid being designated as security but it does not necessarily have direct implications for Ripple," they said.

"If Ripple wins the fair notice argument, however, that would have implications for current and future SEC enforcements, as crypto entities targeted by the SEC would similarly argue that the agency failed to give them fair notice," the strategists concluded.

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