JPMorgan says Congress could refrain from classifying Ethereum as a security

The U.S. Congress, in the interest of protecting investors, could move Ethereum into an “other category” so as not to classify the asset as a security. JPMorgan analysts reach this conclusion, The Block reports.

The bank’s strategists responded to the publication of so-called “Hinman papers” in the context of the SEC against Ripple Labs.

On 13 June the court officially disclosed information related to former regulator William Hinman’s 2018 remarks. In his remarks, the former director of the agency’s corporate finance division stated that, for certain reasons Bitcoin and Ethereum are not securities.

According to JPMorgan, Congress could treat the second-largest cryptocurrency by market capitalization as a commodity, like digital gold, or place it in an “other category” with less burdensome rules.

“Such a move regarding Ethereum and other sufficiently decentralised cryptocurrencies would avoid treating them as securities,” the study said.

As shown by the documents released, some SEC officials at the time voiced concerns about mentioning ETH in draft speech remarks. For example, in one memo it stated that “the fact that tokens in a sufficiently decentralised network are no longer securities” creates a “gap in oversight”.

“Hinman’s speech acknowledges that there exists a category ‘other’ [cryptocurrencies]. This is not a security, because there is as yet no ‘controlling group’ (in the context of the Howey test). But regulation to protect consumers may become necessary,” the analysts said.

JPMorgan strategists see in the “Hinman papers” an explanation of the Commission’s focus on digital assets distinct from the top two by market capitalization.

Analysts say that disclosure of this information in the context of the SEC against Ripple case would “strengthen the arguments for not classifying Ethereum as a security.”

“If a fintech company wins the dispute, this would have implications for current and future enforcement by the regulator. Firms targeted could similarly argue that the agency did not provide them with fair notice,” the analysts concluded.

In February 2023, the head of the SEC Gary Gensler said that any cryptocurrency other than Bitcoin could be classified as securities.

In April the agency head declined to directly answer whether Ethereum would meet that status.