The release of the Hinman papers last week in the U.S. Securities and Exchange Commission’s (SEC) case against Ripple has been a major boost to Ether (ETH), according to a research report from JPMorgan (JPM) Thursday. The emails, which were tied to former Director of Corporation Finance William Hinman’s 2018 speech saying Ether did not look like a security, were published last Tuesday by Ripple in its defense against an SEC lawsuit.
The report noted that senior leadership at the SEC did not rank Ether as a security in 2018, and SEC officials acknowledged that the fact that tokens on a sufficiently decentralized network are no longer securities creates a regulatory gap. JPMorgan analysts led by Nikolaos Panigirtzoglou said that it is not a security because there is no controlling group (at least in the Howey sense) yet there may be a need for regulation to protect purchasers. Panigirtzoglou was referring to the Howey Test, which is used to determine which transactions qualify as investment contracts and thus subject to U.S. securities laws.
The revelations could explain why the regulator has not taken action against Ether while targeting other crypto tokens this year, according to JPMorgan. The analysts wrote that the Hinman documents are likely to influence the direction of the current U.S. congressional effort to regulate the crypto industry in a way that Ether would avoid being designated as a security. The easiest solution for Congress would be to put Ether in the same category as Bitcoin (BTC), and regulate it as a commodity under the oversight of the Commodity Futures Trading Commission (CFTC).
The bank also suggested that a new other category could be introduced specific to Ether and other cryptocurrencies that are decentralized enough to avoid being classed as securities. They added that the more decentralized a cryptocurrency is the higher its chance that it would avoid being designated as a security. The Hinman documents will likely intensify the race among major cryptocurrencies to become more decentralized and look more like Ether, the report said.