SEC Leaves Ether Off Securities Column In eToro Case

Trading app eToro recently reached a settlement with the US Securities and Exchange Commission.

The SEC announced Thursday that eToro “agreed to pay $1.5 million to settle charges that it operated an unregistered broker and unregistered clearing agency in connection with its trading platform that facilitated buying and selling certain crypto assets as securities.”

But eToro also agreed to halt trading for any cryptos except for Bitcoin, Bitcoin Cash, and Ether.

“By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

The settlement may provide more insight into the SEC’s thinking about cryptocurrencies. It reinforces a view of Ether as a commodity rather than a security, a key question about cryptos in the US policy regulation of cryptocurrencies.

The SEC which regulates much of the trading on Wall Street, has taken different views on different cryptos. The Commodities Futures Trading Commission (CFTC) also says cryptos can be securities or commodities.

So what is Ether then, if not a security?

The ‘ETH is Property’ Argument

According to the US tax code under rules at the Internet Revenue Service, Ether and most cryptographically secure digital tokens are simply property and taxed that way.

As a crypto, Ether can be classified as property under the IRS tax code. That’s also Coinbase’s argument about cryptocurrencies in its case with the SEC, that cryptos are property, like baseball cards.

The ‘ETH is Capital, Sort of’ Argument

Another view of Ether that is not inconsistent with that of it as a commodity or property is that it is free speech in the form of software, but software that does something very novel in Internet history.

Ether is a self-executing, programmable contract on Ethereum, an open and autonomous peer-to-peer network.

But it’s not exactly like a legal contract, although the Ethereum platform can be used to host legally-enforceable smart contracts. That could be one of its prime use cases.

Instead, Ether is a machine made out of numbers and words that your home or company office can use to accomplish work. Although it is digital, it is akin to a fax machine, telephone, or rolodex. Ethereum is capital that can increase its users’ productive possibilities.