Hacker Commandeers Official SEC X Account, Falsely Claims Regulator Has Approved Spot Bitcoin ETF

January 9, 2024 The Daily Hodl

Ethereum futures premium hits 1-year high — Will ETH price follow?

November 1, 2023 Coin Telegraph

Aptos

ETH rallied alongside Bitcoin as new spot ETF news emerged, and the altcoin could benefit from the failure of its layer-1 competitors.

Ether (ETH) price has declined by 14.7% since its peak at $2,120 on April 16, 2023. However, two derivatives metrics indicate that investors have not felt this bullish in over a year. This discrepancy warrants an investigation into whether the recent optimism is a broader response to Bitcoin (BTC) breaking above $34,000 on Oct. 24.

One possible reason for the surge in enthusiasm among investors using ETH derivatives is the overall market's excitement regarding the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States. According to analysts from Bloomberg, the ongoing amendments to the spot Bitcoin ETF proposals can be seen as a “good sign” of progress and impending approvals. This development is expected to drive the entire cryptocurrency market to higher price levels.

Interestingly, comments issued by the U.S. SEC Chair Gery Gensler's in 2019 reveal his perspective. During the 2019 MIT Bitcoin Expo, Gensler termed the SEC's position at the time as "inconsistent" because they had denied multiple spot Bitcoin ETF applications, while futures-based ETF products that do not involve physical Bitcoin had been in existence since December 2017.

Another potential factor in the optimism of Ethereum investors using derivatives may be the pricing of the Dencun upgrade scheduled for the first half of 2024. This upgrade is set to enhance data availability for layer-2 rollups, ultimately leading to reduced transaction costs. Moreover, the upgrade will prepare the network for the future implementation of sharding (parallel processing) as part of the blockchain's "Surge" roadmap.

Ethereum co-founder Vitalik Buterin highlighted in his Oct. 31 statement that independent layer-1 projects are gradually migrating and potentially integrating as Ethereum ecosystem layer-2 solutions. Buterin also noted that the current costs associated with rollup fees are not acceptable for most users, particularly for non-financial applications.

Challenges for Ethereum competitors

Ethereum competitors are facing challenges as software developers realize the associated costs of maintaining a complete record of a network's transactions. For instance, SnowTrace, a popular blockchain explorer tool for Avalanche (AVAX), announced its shutdown supposedly due to the high costs.

Phillip Liu Jr., head of strategy and operations at Ava Labs, pointed out the difficulties users face in self-validating and storing data on single-layer chains. Consequently, the substantial processing capacity required often leads to unexpected issues.

For example, on October 18, the Theta Network team encountered a "edge case bug" after a node upgrade, causing blocks on the main chain to halt production for several hours. Similarly, layer-1 blockchain Aptos Network (APT) experienced a five-hour outage on October 19, resulting in a halt in exchanges' deposits and withdrawals.

In essence, the Ethereum network may not currently offer a solution to its high fees and processing capacity bottlenecks. Still, it does have an eight-year track record of continuous upgrades and improvements toward that goal with few major disruptions.

Assessing bullish sentiment in ETH derivatives markets

After evaluating the fundamental factors surrounding the Ethereum network, it's essential to investigate the bullish sentiment among ETH traders in the derivatives markets, despite the negative performance of ETH, which has dropped 14.7% since its $2,120 peak in April.

The Ether futures premium, which measures the difference between two-month contracts and the spot price, has reached its highest level in over a year. In a healthy market, the annualized premium, or basis rate, should typically fall within the range of 5% to 10%.

*Ether 1-month futures basis rate. Source: Laevitas.ch*

Such data is indicative of the growing demand for leveraged ETH long positions, as the futures contract premium surged from 1% on Oct. 23 to 7.4% on Oct. 30, surpassing the neutral-to-bullish threshold of 5%. This surge in the metric follows a 15.7% rally in ETH's price over two weeks.

Analyzing the options markets provides further insight. The 25% delta skew in Ether options is a useful indicator of when arbitrage desks and market makers overcharge for upside or downside protection. When traders anticipate a drop in Ether's price, the skew metric rises above 7%. Conversely, phases of excitement tend to exhibit a negative 7% skew.

*Ether 30-day options 25% delta skew. Source: Laevitas.ch*

Notice how the Ether options 25% delta skew reached a negative 16% level on Oct. 27, the lowest in over 12 months. During this period, protective put (sell) options were trading at a discount, a characteristic of excessive optimism. Moreover, the current 8% discount for put options is a complete turnaround from the 7% or higher positive skew that persisted until Oct. 18.

In summary, the drivers behind the bullish sentiment among Ether investors in derivatives markets remain somewhat elusive. Traders may be expecting approval for Ether spot ETF instruments following Bitcoin's potential approval, or they may be banking on planned upgrades that aim to reduce transaction costs and eliminate the competitive advantage of other blockchain networks like Solana (SOL) and Tron (TRX).

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin price holds $26K as derivatives data hints at end of volatility spike

August 21, 2023 Coin Telegraph

Bitcoin price holds K as derivatives data hints at end of volatility spike

basis

BTC futures and options data show pro traders’ sentiment was not impacted despite last week’s 11.4% correction.

In the past few months, Bitcoin traders had grown used to less volatility, but historically, it’s not uncommon for the cryptocurrency to see price swings of 10% in just two or three days. The recent 11.4% correction from $29,340 to $25,980 between Aug. 15 and Aug. 18 took many by surprise and led to the largest liquidation since the FTX collapse in November 2022. But the question remains: Was this correction significant in terms of the market structure?

Certain experts point to reduced liquidity as the reason for the recent spikes in volatility, but is this truly the case?

BTC surged 70%+ in 2023, yet the "Alameda gap" - liquidity dip post FTX and Alameda Research collapse - remains, supported by low volatility.

Read full analysis here: https://t.co/kVslgLQtpL pic.twitter.com/g8Ac7udBl7
— Kaiko (@KaikoData) August 17, 2023

As indicated by the Kaiko Data chart, the decline of 2% in the Bitcoin (BTC) order book depth has mirrored the decrease in volatility. It’s possible that market makers adjusted their algorithms to align with the prevailing market conditions.

Hence, delving into the derivatives market to assess the impact of the drop to $26,000 seems reasonable. This examination aims to determine whether whales and market makers have become bearish or if they’re demanding higher premiums for protective hedge positions.

To begin, traders should identify similar instances in the recent past, and two events stand out:

*Bitcoin/USD price index, 2023. Source: TradingView*

The first decline took place from March 8 to March 10, causing Bitcoin to plummet by 11.4% to $19,600, marking its lowest point in over seven weeks at that time. This correction followed the liquidation of Silvergate Bank, a crucial operational partner for multiple cryptocurrency firms.

The subsequent significant move occurred between April 19 and April 21, resulting in a 10.4% drop in Bitcoin’s price. It revisited the $27,250 level for the first time in more than three weeks after Gary Gensler, the chair of the United States Securities and Exchange Commission, addressed the House Financial Services Committee. Gensler’s statements provided little reassurance that the agency’s enforcement-driven regulatory efforts would cease.

Not every 10% Bitcoin price crash is the same

Bitcoin quarterly futures generally tend to trade with a slight premium when compared to spot markets. This reflects sellers’ inclination to receive additional compensation in return for delaying the settlement. Healthy markets usually see BTC futures contracts being traded with an annualized premium ranging from 5 to 10%. This situation, termed “contango," is not unique to the cryptocurrency domain.

*Bitcoin 3-month futures premium, March/April 2023. Source: Laevitas*

Leading up to the crash on March 8, Bitcoin’s futures premium was at 3.5%, indicating a moderate level of comfort. However, when Bitcoin’s price dipped below $20,000, there was an intensified sense of pessimism, causing the indicator to shift to a discount of 3.5%. This phenomenon, referred to as "backwardation," is typical of bearish market conditions.

Conversely, the correction on April 19 had minimal impact on Bitcoin's futures main metric, with the premium remaining around 3.5% as the BTC price revisited $27,250. This could imply that professional traders were either highly confident in the soundness of the market structure or were well-prepared for the 10.4% correction.

The 11.4% BTC crash between Aug. 15 and Aug. 18, reveals distinct dissimilarities from previous instances. The starting point for Bitcoin’s futures premium was higher, surpassing the 5% neutral threshold.

*Bitcoin 3-month futures premium, August 2023. Source: Laevitas*

Notice how rapidly the derivatives market absorbed the shock on Aug. 18. The BTC futures premium swiftly returned to a 6% neutral-to-bullish position. This suggests that the decline to $26,000 did not significantly dampen the optimism of whales and market makers regarding the cryptocurrency.

Options markets confirm lack of bearish momentum

Traders should also analyze options markets to understand whether the recent correction has caused pro traders to become more risk-averse. In short, if traders anticipate a Bitcoin price drop, the delta skew metric will rise above 7%, and phases of excitement tend to have a -7% skew.

*Bitcoin 30-day options 25% delta skew. Source: Laevitas*

Data indicate excessive demand for call (buy) BTC options ahead of the Aug. 15 crash, with the indicator at -11%. This trend changed over the subsequent five days, though the metric remained within the neutral range and was unable to breach the 7% threshold.

Ultimately, both Bitcoin options and futures metrics reveal no signs of professional traders adopting a bearish stance. While this doesn’t necessarily guarantee a swift return of BTC to the $29,000 support level, it does reduce the likelihood of an extended price correction.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Why Bitcoin’s resistance to retesting the $25K support could be futile

June 13, 2023 Coin Telegraph

Why Bitcoin’s resistance to retesting the K support could be futile

basis

Bitcoin price continues to explore the lower regions of its trading range, but a drop to $25,000 seems nearly inevitable according to derivatives data.

Bitcoin (BTC) has been trading in a narrow 3.4% range for the past three days after successfully defending the $25,500 support on June 10. In this time, investors’ attention has shifted to the macroeconomic area as the U.S. Federal Reserve will announce its interest rate decision on June 14.

Cryptocurrencies might work independently from the traditional finance markets, but the cost of capital impacts almost every investor. Back in May, the Fed raised its benchmark interest rate to 5%–5.25%, the highest since 2007.

All eyes will be on Fed’s Chair Jerome Powell media speech 30 minutes after the rate announcement as markets are pricing in 94% odds of a pause at the June meeting, based on the CME FedWatch tool.

Crypto fears more than just a FOMC meeting

The upcoming FOMC meeting isn’t the only concern for the economy, as the U.S. Treasury is set to issue more than $850 billion in new bills between now and September.

Additional government debt issuance tends to cause higher yields and, thus, higher borrowing costs for companies and families. Considering the already restrained credit market due to the recent banking crisis, odds are that gross domestic product growth will be severely compromised in the coming months.

According to on-chain analytics firm Glassnode, miners have been selling Bitcoin since the start of June, potentially adding further pressure to the price. Among the potential triggers are reduced earnings from a cooldown in Ordinals activity and the mining hash rate reaching an all-time high.

Investors now question whether Bitcoin will test the $25,000 resistance, a level unseen since mid-March and for this reason,they are closely monitoring Bitcoin futures contract premiums and the costs of hedging using BTC options.

Bitcoin derivatives show modest improvement

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, BTC futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas*

The demand for leveraged BTC longs has slightly increased as the futures contract premium increased to 3% from 1.7% on June 10, although it is still far from the neutral 5% threshold.

Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign of when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

The 25% delta skew metric entered "fear" mode on June 10 as Bitcoin’s price faced a 4.5% correction. Currently at 4%, the indicator displays a balanced pricing between protective puts and the neutral-to-bullish call options.

The crypto bear trend looks set to continue

Normally, a 3% futures basis and a 6% delta skew would be considered bearish indicators, but that is not the case given the extreme amount of uncertainty regarding the economic conditions and the recent charges against Binance and Coinbase. The SEC alleges those exchanges held unregistered offerings and sales of tokens and failed to register as brokers.

U.S. lawmakers have criticized the SEC for its heavy-handed approach to crypto enforcement. On June 12, Representative Warren Davidson proposed a bill aimed at restructuring the SEC by firing chair Gary Gensler and redistributing power between the commissioners.

The uncertain crypto regulatory environment remains a hurdle to attracting institutional investors. Furthermore, the recession risk for the U.S. economy limits the demand for risk-on assets such as Bitcoin, increasing the odds of the $25,000 support being tested.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin rebound falters amid SEC crackdown on exchanges, raising chance of a BTC price capitulation

June 8, 2023 Coin Telegraph

Coin Telegraph

Regulatory concerns continue to impact the entire crypto market and this week’s BTC options expiry could play a decisive role in pushing Bitcoin price under $26,000.

Bitcoin (BTC) price lost steam after a failed retest of the $27,400 resistance on June 6, signaling that investors became less confident after the recent regulatory actions by the U.S Securities and Exchange Commission against Binance and Coinbase. Both exchanges are being sued on multiple counts, including failure to register as licensed brokers and offering unregistered securities.

The SEC might have a difficult case ahead

According to Blockchain Association CEO Kristin Smith, the SEC is trying to circumvent formal rulemaking processes and deny public engagement. Meanwhile, Insider Intelligence crypto analyst Will Paige said the SEC’s intent is to police the space through enforcement in the absence of a regulatory framework.

Those criticisms explain why investors may be clinging to their hopes in the U.S. Financial Services Committee hearing, scheduled for June 13.

The potential overreach of the SEC has caused ripples multiple times,including the U.S. legislative. Senator Bill Hagerty, for instance, stated that the regulating agency is "weaponizing their role", and publicly called out the SEC chairman Gary Gensler.

The @SECGov is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible. @GaryGensler, expect to hear from Congress.https://t.co/GdprSW1Yns
— Senator Bill Hagerty (@SenatorHagerty) June 6, 2023

Further supporting the thesis that the cryptocurrency space can function without crypto-banks, as the centralized exchanges are commonly known, is the sudden increase in decentralized finance (DeFi) volumes.

The median trading volume across the top three decentralized exchanges jumped 444% between June 5 and June 7. As DEX volumes surged, net outflows on Binance reached $778 million, the difference between the value of assets entering and exiting the exchange.

Bitcoin has been trying to claim back the $27,000 support, but that might be harder than expected given the upcoming $670 million weekly option expiry on June 9.

Bulls have been caught by surprise with the negative newsflow

It is worth noting that the actual open interest for the June 9 expiry will be lower since bulls concentrated their wagers above $27,000. These traders got excessively optimistic after Bitcoin’s price gained 9% between May 25 and May 29, testing the $28,000 resistance.

*Bitcoin options aggregate open interest for June 9. Source: CoinGlass*

The 0.63 put-to-call ratio reflects the imbalance between the $410 million in call (buy) open interest and the $260 million in put (sell) options. However, if Bitcoin’s price remains near $26,500 at 8:00 am UTC on June 9, only $38 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC trades below that level on expiry.

Bitcoin bears aim for sub-$26,000 to increase their payout

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 9 for call (bull) and put (bear) instruments varies depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $25,000 and $26,000: 100 calls vs. 5,100 puts. Bears in total control, profiting $125 million.
Between $26,000 and $27,000: 1,500 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $65 million.
Between $27,000 and $28,000: 4,200 calls vs. 1,300 puts. The net result favors the call (bull) instruments by $80 million.
Between $28,000 and $29,000: 8,700 calls vs. 700 puts. The net result favors call (bull) instruments by $225 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. This oversimplification disregards more complex investment strategies.

Given that Bitcoin longs using futures contracts were liquidated to the tune of $100 million on June 5, bulls might have less margin required to try pumping the BTC price above the $27,000 mark. Consequently, bears seem closer to scoring a decent profit on Friday's options expiry.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Security or not, Ethereum price looks poised to hold the $1.8K level based on 3 key metrics

June 7, 2023 Coin Telegraph

Security or not, Ethereum price looks poised to hold the .8K level based on 3 key metrics

basis

Ethereum could eventually fall afoul of the SEC, but at the moment, key data points suggest ETH is poised to hold the $1,800 level.

Ether’s (ETH) price retested $1,780 after the news of the U.S. Securities and Exchange Commission suing cryptocurrency exchanges Binance and Coinbase but it’s not preposterous to suggest that Ether bulls should be more than happy that its price did not break below the 67-day support.

The SEC actions are actually a double-edged sword for Ethereum and on crypto Twitter, some analysts attributed the bounce in Ether as a result of it not being listed as a security in either of the cases brought against Binance and Coinbase. For instance, the SEC explicitly mentioned BNB, Solana (SOL) and Cardano (ADA), which are direct competitors to Ethereum’s smart contract processing capabilities.

However, as noted by analyst Jevgenijs Kazanins, Ether’s omission does not mean that it has the green light from the SEC.

SEC did not mention #ETH in the list of tokens that it considers to be securities when suing Coinbase and Binance. Could it be that the SEC is working on a separate lawsuit targeting Ethereum Foundation?
— Jevgenijs Kazanins (@jevgenijs) June 6, 2023

Kazanins raises the question of whether the SEC could be targeting the Ethereum Foundation in a separate lawsuit. For now, the idea is a mere unfounded speculation, but it certainly has merit given that SEC chairman Gary Gensler refused to answer questions about Ethereum’s status before the U.S. House Financial Services Committee in April 2023.

In the meantime, what we can focus on is Ether’s price action, network data and other data which impacts investor sentiment and price in the short-term.

Ethereum Dapps get a slight boost

TVL measures the deposits locked in Ethereum's decentralized applications, which have been in a downtrend since mid-March. The indicator reached a 14.35 million ETH bottom on June 3, but bounced back to 14.6 million ETH by June 6, according to DefiLlama.

The number of active addresses interacting with decentralized applications (DApps) is also in a slump. Over the last 30 days, the top 12 DApps running on the Ethereum network saw a 4% increase in active addresses, even though the average transaction gas fee remained above $6.5.

*30-day Ethereum DApp activity. Source: DappRadar*

If investors fear that Ether has higher odds of breaking below the $1,800 support, it should be reflected in the ETH futures contract premium and increased costs for protective put options.

Ether derivatives metrics even as regulations ramped up

Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, ETH futures contracts in healthy markets should trade at a 4 to 8% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 2-month futures annualized premium. Source: Laevitas*

According to the futures premium, known as the basis indicator, professional traders have been avoiding leveraged longs (bullish bets). Still, not even the retest of the $1,780 level on June 6 was enough to flip those whales and market makers into bearish sentiment.

To exclude externalities that might have solely impacted the Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put option premium is higher than the call options.

*Ether 30-day 25% skew. Source: Laevitas*

The skew indicator will move above 8% if traders fear an Ether price crash. On the other hand, generalized excitement reflects a negative 8% skew. As displayed above, the 25% delta skew moved above the positive 8% threshold on June 5, indicating bearishness. However, the subsequent bounce to $1,880 on June 6 has moved the metric back to a neutral state.

Ether’s price looks poised to hold above $1,800

In short, these three indicators signal resilience — namely, the TVL bounce to 14.6 million ETH, the 4% increase in Dapps active addresses, and a meager impact on Ether derivatives markets despite the retest of the $1,800 level.

Ethereum network usage data remains healthy and the recent retest of the 67-day support was not enough to scare professional traders, according to derivatives metrics.

Consequently, bulls seem to have dodged a bullet, greatly reducing the risk of an imminent price crash.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Gold Bug Schiff Says ‘The Months of Declining Inflation Are in the Review Mirror,’ AI Crypto Assets Surge, and More — Week in Review

March 5, 2023 Bitcoin.com

SEC Clampdown Has Crypto Space Abuzz, Pantera Capital Says We’re in Bull Market, and Much More — Week in Review

February 19, 2023 Bitcoin.com

CFTC declares Ether as a commodity again in court filing

December 14, 2022 Coin Telegraph

Alameda

The community is hopeful that the assertion by the CFTC will put to bed claims that staked coins are securities according to the Howey Test.

The Commodity Futures Trading Commission (CFTC) has again labeled Ether (ETH) as a commodity in a Dec. 13 court filing — in contrast to statements from chief Rostin Behnam on Nov. 30 suggesting that Bitcoin was the sole cryptocurrency that should be viewed as a commodity.

According to the CFTC, as per their filing today, ETH is a commodity. This really should put any security designation to rest. pic.twitter.com/PkHWredNK4
— Hal Press (@NorthRockLP) December 13, 2022

In its lawsuit against Sam Bankman-Fried, FTX, and sister company Alameda Research, the regulator on multiple occasions referred to Ether, Bitcoin (BTC) and Tether (USDT) "among others" as "commodities" under United States law.

“Certain digital assets are “commodities,” including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).”

However, there appears to be some disagreement within the CFTC itself regarding whether Ether should be viewed as a commodity or not, at least in recent weeks.

During a crypto event at Princeton University on Nov. 30, CFTC chief Rostin Benham reportedly suggested that Bitcoin is the only crypto asset that should be viewed as a commodity — walking back previous comments which asserted that Ether may also be a commodity.

The chairman of the Securities and Exchange Commission, Gary Gensler has also had an undetermined stance on Ether in recent months.

In an interview with Jim Cramer during the hosts' Mad Money show on Jun. 27, Gensler confirmed that Bitcoin was a commodity adding: “That's the only one I'm going to say.”

Gensler has previously suggested Ether was a security after its initial coin offering but had become more decentralized and turned into a commodity since then.

In September, his stance appeared to have shifted again after Ether’s transition to proof-of-stake (PoS), when he argued that staked tokens may constitute securities under the Howey test.

The designation of crypto assets in the U.S. is particularly important, as the CFTC regulates commodities futures while securities like bonds and stocks are regulated by the Securities and Exchange Commission (SEC).

Crypto skeptic Senator Elizabeth Warren is reportedly working on a bill that would give the SEC most of the regulatory authority over the crypto industry, and Intercontinental Exchange Inc CEO Jeffrey Sprecher is also confident that crypto assets will be handled like securities — suggesting at a financial services conference on Dec. 6 that this would result in greater consumer protections.

Belgium has taken a different stance on the designation however, with its Financial Services and Markets Authority asserting in a Nov. 22 report that Bitcoin, Ether and other crypto assets issued solely by computer code do not constitute securities.

Ether staking could trigger securities laws — Gensler

September 16, 2022 Coin Telegraph

Blockfi

Though he did not specify any particular crypto, SEC chair Gary Gensler said proof-of-stake cryptocurrencies could be subject to securities laws.

Ethereum’s upgrade to proof-of-stake may have placed the cryptocurrency back in the crosshairs of the Securities and Exchange Commission (SEC).

Speaking to reporters after the Senate Banking Committee on Sept. 15, SEC chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey test, according to The Wall Street Journal.

“From the coin’s perspective […] that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” WSJ reported Gensler as saying.

The comments came on the same day as Ethereum's (ETH) transition to proof-of-stake (PoS), meaning the network will no longer rely on energy-intensive “proof-of-work” mining and instead, allows validators to verify transactions and create new blocks in a process that involves “staking."

Gensler said that allowing holders to stake coins results in “the investing public anticipating profits based on the efforts of others.”

Gensler went on to say that intermediaries offering staking services to its customers “looks very similar — with some changes of labeling — to lending.”

The SEC has previously said they didn’t see ETH as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acted more like a commodity.

The SEC has been keeping a close watch on the crypto space, particularly those that it alleges are securities. The regulator has been embroiled in a case against Ripple Labs concerning the launch of the XRP token.

The SEC has also pushed firms offering crypto lending products to register with them, including a $100 million penalty directed at BlockFi in February for its failure to register high-yield interest accounts that the SEC considers securities.

Gabor Gurbacs, director of digital assets strategy at American investment firm VanEck, tweeted to his 49,300 followers that he had been saying for over six years "that POW to POS transitions can draw regulatory attention."

To be clear, I am not saying that ETH is necessarily a security because of its proof model, but regulators do talk about staking in the context of dividends which if one feature of what securities laws call a "common enterprise". There are other factors in the Howey test too.
— Gabor Gurbacs (@gaborgurbacs) September 15, 2022

Gurbacs went on to clarify that regulators refer to rewards from staking as dividends, which is a feature of the Howey test.

The Howey Test refers to a Supreme Court case in 1946 where the court established whether a transaction qualifies as an investment contract. If it does, then it would be considered a security and is covered by the Securities Act of 1933.

gensler