US Lawmakers Press SEC for Definition of Ethereum’s Asset Status

Crypto News– US lawmakers press SEC: A group of Republican lawmakers, including the chairmen of the House Financial Services Committee and House Committee on Agriculture, has formally requested SEC Chair Gary Gensler to provide clear guidance on the regulatory stance regarding the custody of non-security digital assets by Special Purpose Broker-Dealers (SPBD).

US Lawmakers Press SEC for Definition of Ethereum’s Asset Status

The March 26 letter specifically demands clarity on the status of Ethereum (ETH) and further requests the regulator to establish clear definitions for various terms related to crypto, digital assets, securities, and investment contracts.

The letter was signed by 48 members of Congress, including House Financial Services Committee chair Patrick McHenry and House Committee on Agriculture chair Glenn Thompson. Lawmakers asked for a response to their questions by April 9.

The SEC and the CFTC have an extensive record asserting that Ethereum is NOT a security. So why does Prometheum, an SEC-registered broker-dealer, plan to custody ETH?

I led a letter with @FinancialCmte and my colleagues to @GaryGensler to get some answers. https://t.co/C8lfTbmHtR

— Tom Emmer (@GOPMajorityWhip) March 26, 2024

Position of Ethereum

The letter highlights that the SEC has yet to propose a rule or offer comprehensive guidance for asset classification, leaving the term digital asset securities undefined.

Lawmakers expressed concern over the lack of clarity within the SEC’s SPBD regime and the potential regulatory ramifications of permitting custody services in this context, despite both the SEC and the CFTC publicly acknowledging ETH as a non-security digital asset. Their concerns were sparked by Prometheum Inc.’s recent announcement through its subsidiary, Prometheum Ember Capital, which is a FINRA-approved SPBD intending to provide custody services for Ethereum to institutional clients.

Lawmakers underscored the alarming scenario presented by Prometheum’s plans, suggesting that allowing such actions to proceed under the current regulatory framework, which doesn’t explicitly permit SPBD custody of non-security digital assets, could result in irreparable consequences for the digital asset markets.

Worsening the problem

Pointing out the contrast between the SEC’s enforcement actions and the established recognition of ETH as a non-security digital asset, the letter criticized the SEC for its lack of comprehensive guidance or rules concerning asset classification within the digital asset marketplace.

Lawmakers emphasized that this absence of clarity has exacerbated uncertainty within the digital asset ecosystem, making it more challenging for regulated entities to adhere to SEC regulations.

Furthermore, the letter underscored the wider implications of potentially categorizing ETH as a digital asset security, including its impact on commodity derivative exchanges registered with the CFTC and the availability of ETH Futures for trading.

Such a determination could carry significant consequences for market participants, potentially restricting access to vital risk management tools and causing substantial price volatility throughout the ETH market.