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The SEC Chair has issued a game-changing Ethereum warning—causing a major price drop

Ethereum, the second-largest cryptocurrency after Bitcoin, went through a major upgrade this week—one that some feel could wreak havoc with Ethereum’s price.

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Ethereum price fell again this week in the run-up to its long-awaited upgrade as the crypto market braces for a potential “black swan” event.

Now, US Securities and Exchange Commission (SEC) Chairman Gary Gensler has warned that Ethereum’s upgrade could mean the cryptocurrency could be regulated as a security—spurring an Ethereum price selloff.

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Ethereum’s transition to proof-of-stake, which allows Ethereum holders to lock in their coins to receive a return, could lead the US Securities and Exchange Commission (SEC) to take a closer look at regulating Ethereum as a security, SEC Chairman Gary reported after a hearing by the Senate Banking Committee. Gensler said The Wall Street Journal.

The upgrade, completed Thursday after years in the making, means the Ethereum network is secure and transactions are confirmed by Ethereum holders “staking” their coins instead of relying on so-called miners. According to the Ethereum Foundation, Ethereum’s transition to proof-of-stake will reduce the blockchain network’s carbon emissions by 99%.

“From a coin perspective … this is another indicator that, under the Howe test, the investing public is expecting a return based on the efforts of others,” Gensler said, not referring to any specific cryptocurrency.

According to the Howe test, a security is defined as “an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others.” The securities are then subject to disclosure and registration requirements.

In a shot at Coinbase and other crypto exchanges, Gensler said any crypto trading platform that offers staking services to users is “similar to lending—with some changes in labeling.”

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Gensler reiterated his view that almost all cryptocurrencies are securities, once again calling for crypto companies to register with the SEC.

“Of the approximately 10,000 tokens in the crypto market, I believe the vast majority are securities. Offerings and sales of these thousands of crypto security tokens are covered by securities laws, requiring these transactions to be registered or pursuant to an available exemption,” Gensler said in prepared remarks. “As such, I have asked SEC staff to work directly with entrepreneurs to register and regulate their tokens as securities.”

Last week, the White House Office of Science and Technology warned Bitcoin, which uses an energy-intensive proof-of-work consensus mechanism, could be banned in the US because of its sky-high carbon footprint.

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