Regulators in the U.S. are considering the regulation of digital tokens outside bitcoin.
The Wall Street Journal reported that the inquiry is focused on the cryptocurrency Ethereum, which hasn’t been in the crosshairs of regulators as of yet. Sources told the paper the analysis, which is being conducted by federal securities and commodities regulators, is focused on whether the creators of cryptocurrency outside bitcoin exert a lot of influence over the value, similar to how a company’s actions impact a stock and its price.
The report noted the Commodity Futures Trading Commission (CFTC) has determined that bitcoin is largely a commodity, which means it’s not subject to the investor protection rules that are enforced for public companies by the Securities and Exchange Commission (SEC). The WSJ reported that when it comes to Ethereum, some regulators think its creation back in 2014 was likely an illegal securities sale, while others disagree, arguing there is no one person or entity behind ether who plays a role in driving the value of the digital token.
If regulators determine Ethereum is a security and is subject to SEC rules, the WSJ reported it could spur a sell-off and upset cryptocurrency trading exchanges such as Coinbase that let people buy and sell ether. The paper noted that in the past, Coinbase has discussed applying for an SEC license so that it can operate as a brokerage firm.
The report comes just a few days after Gary Gensler, the finance chief for Hillary Clinton’s 2016 presidential bid and one of the top financial regulators in the Obama administration, who is delving into the world of blockchain through a role at the Massachusetts Institute of Technology, argued that Ethereum and Ripple violated securities regulations in the U.S.
“There is a strong case for both of them — but particularly Ripple — that they are noncompliant securities,” Gensler told The New York Times in an interview.