SEC vs Ripple Case Has Implications for Ethereum Too

Ethereum price has been in a consolidation phase in the past few days as investors wait for the next catalyst. It was trading at $1,200, where it has been in the past few days. This price is close to the important support level at $1,000 and the year-to-date low of $879. 

Is Ethereum a security?

A key catalyst for ETH price in 2023 will be the ongoing litigation in the US between Ripple and the Securities and Exchange Commission (SEC). The SEC alleges that the Ripple Labs raised funds without following the due process in 2013. It then says that XRP is not a cryptocurrency like Bitcoin.

Instead, the SEC alleges that XRP is a financial security, which should fall under security laws in the US. Those laws include transparency and regular financial reporting. 

If Ripple loses the case, the impact on Ethereum will be significant. For one, Ethereum’s network supports thousands of blockchain projects that are similar to Ripple. Such networks could be classified as securities.

Most importantly, Ethereum’s transition from a proof-of-work (PoW) network into a proof-of-stake (PoS) platform made it a security as well. In a statement, Gary Gensler confirmed that the network was indeed a security because of its staking features. 

Staking is a process where investors buy and hold cryptocurrencies with the goal of generating an income. This income comes from the activity in the network. As such, Gensler said that “the investing public is anticipating profits based on the efforts of others.”

What is ETH is a security?

If ETH is declared a security, it means that many American exchanges, including Coinbase will stop offering it in their platforms. Today, many exchanges don’t provide Ripple’s XRP because of the SEC investigation. 

The SEC has already come under a lot of pressure following the collapse of FTX and other centralised exchanges like Voyager Digital and Celsius. 

Therefore, to prevent this criticism, there is a likelihood that it will be more forceful when regulating the sector. As such, if it wins against Ripple, it could target Ethereum, which is the biggest blockchain in the industry.