The security vs. not-a-security debate has been going on in the U.S. for years now. When Ripple was thrusted by a lawsuit in 2020, almost everyone had an opinion on the classification. This topic has yet again become a mainstream contention topic, owing to the latest legal action taken by the agency against Binance and Coinbase. Now, according to JPMorgan analysts, Ethereum could be placed under a novel ‘other’ category by U.S. lawmakers. Doing so would shield the asset from being identified as a security, and in-turn protect investors. Strategists at the investment bank, headed by Nikolaos Panigirtzoglou, reportedly wrote in a recent note,
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. This ‘other category’ that would involve more restrictions and investor protections than currently envisaged for commodities but less onerous than those required for securities.”
The ‘Hinman’ factor
The ‘Hinman’ documents pertaining to the SEC-Ripple case were released recently. The internal e-mails written by the former SEC Director of Corporation Finance in 2018 pointed out that he did not see a need, to regulate ETH as a security. That echoed his infamous speech from the same year. Back in the day, William Hinman had branded ETH as a non-security. This was because it was based on a “sufficiently decentralized” blockchain network.
Stuart Alderoty pointed out how Hinman ignored multiple warnings that his speech contained made-up analysis with no basis in law. Ripple’s Chief Legal Officer said that Hinman’s claims divorced from the Howey factors and exposed regulatory gaps. He noted that this would create not just confusion, but “greater confusion” in the market.
According to JPMorgan strategists, the release of the Hinman documents could perhaps explain why the SEC has been steering away from taking action against Ether. On the other hand, the regulator has red-flagged almost all other major tokens of late. In the Binance case, BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI were victims. In the Coinbase lawsuit, the SEC specifically deemed SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO to be securities.
Nevertheless, the release of the documents will benefit Ethereum, according to JPMorgan strategists. The documents “boost the Ethereum case to avoid being designated as security.” However, they feel that “it does not necessarily have direct implications for Ripple.”