The disclosure of the Hinman documents in the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Ripple is anticipated to have a favorable effect for ether (ETH), according to a new research study by JPMorgan (JPM). It also suggests that the cryptocurrency market may become more decentralized as a result. The Hinman documents were made public by Ripple as part of its defense against a current SEC case. They include emails pertaining to former SEC Director of Corporation Finance William Hinman’s 2018 lecture in which he said that ether did not resemble a security.
Senior SEC officials did not categorize ether as a security in 2018, according to the JPMorgan research. According to the article, the SEC recognized the existence of a “other category” in which tokens on a sufficiently decentralized network would not be regarded as securities, resulting in a legal vacuum that would call for buyer protection measures.
Leading the team of analysts at JPMorgan, Nikolaos Panigirtzoglou, made reference to the Howey Test, which evaluates whether a transaction qualifies as an investment contract and as such is subject to U.S. securities regulations. Because there is no controlling entity, ether is not regarded as a security in the conventional meaning of the Howey Test, but regulation may still be required to protect investors, according to the research.
The disclosure of the Hinman papers could make clear why the SEC has not taken regulatory action against ether this year despite doing so against other cryptocurrencies. According to JPMorgan’s analysts, these papers may have an impact on current legislative attempts to regulate the cryptocurrency sector and exclude ether from being labeled as a securities.
The research suggested classifying ether in the same category as bitcoin (BTC) and putting it under the Commodity Futures Trading Commission’s (CFTC) jurisdiction as a commodity to simplify regulation. JPMorgan also suggested creating a brand-new “other category” that would be specially designed for decentralized digital currencies like ether, allowing them to avoid being labeled as securities. The research stressed that a cryptocurrency is more likely to evade the security label the more decentralized it is.
It is anticipated that the publication of the Hinman papers would increase competition among the top cryptocurrencies to increase their decentralization and mirror ether’s decentralized nature. The analysis came to the conclusion that this move toward decentralization might have a big impact on how cryptocurrencies are regulated in the future and how the landscape of cryptocurrencies is changing as cryptocurrencies try to adhere to legal requirements while retaining their distinctive features.
