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JPMorgan stated in a research report on Thursday that the recent disclosure of the Hinman papers by the U.S. Securities and Exchange Commission (SEC) in its case against Ripple has provided a significant uplift for ether (ETH) and is expected to catalyze a shift towards greater decentralization in the cryptocurrency market.
Last Tuesday, Ripple released emails linked to the former Director of Corporation Finance, William Hinman, in which he stated in his 2018 speech that ether did not possess the characteristics of a security. These emails were disclosed by Ripple as part of its defense against an ongoing lawsuit filed by the U.S. Securities and Exchange Commission (SEC).
Senior leadership at the SEC did not rank ether as a security in 2018, the report noted, and SEC officials acknowledged that the “fact that tokens on a sufficiently decentralized network are no longer securities creates a regulatory gap.”
“The speech acknowledges that there is an other category,” analysts led by Nikolaos Panigirtzoglou wrote, adding that “it is not a security because there is no controlling group (at least in the Howey sense) yet there may be a need for regulation to protect purchasers.”
Panigirtzoglou mentioned the Howey Test, a criterion employed to ascertain the classification of transactions as investment contracts, thereby falling under the purview of U.S. securities regulations. An asset can be deemed a security if it involves an investment of funds in a collective venture with the anticipation of profits obtained from the endeavors of others.
JPMorgan suggests that these revelations might provide an explanation for the regulator's differential treatment of ether in contrast to its focus on other crypto tokens during the current year.
“The Hinman documents are likely to influence the direction of the current U.S. congressional effort to regulate the crypto industry in a way that ether would avoid being designated as a security,” the analysts wrote.
Congress could simplify matters by classifying ether, alongside bitcoin (BTC), as a commodity and subjecting it to regulation under the supervision of the Commodity Futures Trading Commission (CFTC).
A new “other category” could be introduced specific to ether and other cryptocurrencies that are decentralized enough to avoid being classed as securities, the bank said, adding that the “more decentralized a cryptocurrency is the higher its chance that it would avoid being designated as a security.”
The report suggests that the Hinman documents are expected to fuel a more intense race among leading cryptocurrencies, pushing them to prioritize decentralization and adopt features similar to those of ether.
