Another big development in the crypto world. After the success of Bitcoin ETF, we are told that the SEC has finally approved the Ethereum ETF. Moreover, we are also informed that even the Bloomberg analysts were shocked by a sudden shift in the SEC’s stance. Though I don’t fully understand the content of the FIT 21 bill, what is clear to me is that it aims to clarify the roles of both the SEC and the CFTC when it comes to regulating digital assets. This move has received support from Congress and the White House. Source
Many experts in the crypto sector interpret the recent approval of the SEC as an implicit recognition that ETH is not a security. However, Scott Johnson, a finance lawyer has a different point of view. For him, the SEC did not explicitly confirm ETH's non-security status in its approval order. Instead, it decided to evade the issue. Source
Reflecting on the above two articles plus this one, I learned one important insight and observed one interesting thing concerning the stance of SEC when it comes to crypto.
As for the new learning, I realized the important role of the Howey Test in identifying whether a particular cryptocurrency is considered a security or not. The test provides four criteria to determine if a transaction is considered an investment contract: investment of money, common enterprise, expectation of profits, and efforts of others.
Among these four elements, the second and the fourth are not clear to me. By “common enterprise, it means that the expected profit of the investor is connected with those of either the promoter of the project or other investors. As for the “efforts of others,” the same expected profit must come primarily from the efforts of a third party or a promoter.
Regarding that interesting aspect related to the stance of the SEC, I observe that what this regulating body hates in crypto is the idea of staking where holders can earn passive income. In the eyes of the SEC, such financial capability of cryptocurrency can be classified as an investment contract.