Has Ether’s Merge Made It An SEC Target?

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Last Updated on 21 September 2022 by CryptoTips.eu

Jeroen Kok

Jeroen is one of the lead copywriters on Cryptotips.eu and discusses all recent events in the crypto market. This includes news updates, but also price analyzes and more. He developed his passion for cryptocurrency during the bull run in 2017. He has learned a lot since then. The combination of cryptocurrency and creative writing is perfect for Jeroen and an excellent way to share his knowledge with a wide audience. Find me on LinkedIn / [email protected]
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Over the weekend, this site highlighted the words of Microstrategy’s Michael Saylor, who pointed to a Wall Street Journal article that claimed the Merge would essentially turn Ethereum into an SEC target. A recent lawsuit against a popular YouTube figure seem to confirm this view. Could Vitalik Buterin’s company be in trouble?

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In the past month, all everyone in the cryptosphere talked about was the Merge, the upgrade from proof of work to proof of stake for Ether, the second largest crypto coin. Ever since the event took place last week, Ether has fallen more than Bitcoin.

Since last week, when Vitalik Buterin announced the Merge had been completed, Ether is down around 16%. Bitcoin has dropped around 6% in the same period.

It is now possible that not only a buy the rumor sell the news argument could be made for this drop, but also possible legal troubles for Ethereum.

Gary Gensler, the new head of the SEC (securities and exchange commission), seems to believe that Ether can now be considered a security, as a large part of the nodes which have to validate Ether’s proof of stake, are to be found on US territory.

The argument is found deep within a September 19 lawsuit the SEC made against crypto researcher and YouTuber Ian Balina claiming that he conducted an unregistered offering of Sparkster (SPRK) tokens when he formed an investing pool on Telegram in 2018.

In the lawsuit the SEC states:

At that point, SPRK investors’ ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States.

In short, the SEC is hoping that a judge will allow it to claim that Ethereum transactions as from now are ruled by US jurisdiction as most of the ‘deciders’ are in the US itself. If a judge would agree with this argument, the SEC would have precedent and could then each time refer to the verdict to create problems for Ethereum.

Aaron Lane, an Australian lawyer, admitted that the SEC might have a point:

The fact that we’ve got a U.S. based plaintiff, a U.S. based defendant and transactions flowing from the U.S. is what is most relevant here. It doesn’t matter whether the payment was done on Ethereum, Mastercard or any payment network for that matter.