This Monday at the Business of Blockchain conference at the Massachusetts Institute of Technology, Gary Gensler stated that he is pretty confident the SEC will classify Ethereum and XRP as securities. You can read the full transcript here of his speech.
For those not aware of who Gary Gensler is, he served as the 11th chairman of the Commodity Futures Trading Commission. He’s been around the financial regulation game for a long time, and his opinion should be taken seriously as he knows how the sausage is made when it comes to financial regulation and bureaucracy.
His statements have caused a bit of a stir in the crypto world, although not as much as they probably should because of the current bull run we are on. When the markets are green, news like this is usually shrugged off.
But Gensler’s statement really confirms what I have been writing on this blog for some time, and that is the fact that the SEC will eventually classify many of last years ICOs and even top coins like Ethereum as a security. Once they do that, they will have full authority over them.
But what makes this a big deal, is that once they deem these coins securities, that means that virtually every one of them broke the law in some respect when raising money or distributing their coins. So any project that continues running is at risk of being prosecuted at any moment. Even if they shut down they are still in legal trouble, but much less of a target than those who continue to operate. Clearly this will have a negative impact on their price.
Now personally, if this happens I believe the effect with be very dramatic on the markets. However, I don’t think it will be long lasting. But some coins could be wiped out and will not recover. The projects could very well shut down as the founders don’t want to risk legal prosecution. Many project founders have already made their money, there is no reason for them to risk legal trouble or even jail time. They will simply abandon the project and launch a new one under SEC rules that complies with all financial laws.
Another thing to consider is all the ERC 20 tokens which make up a large portion of the markets top 100 coins. If Ethereum is classified as a security, what does that mean for all those ERC 20 tokens? Of course, it’s impossible to say, but a good forecast would be that their price would be negatively effected in the short term, and just like I mentioned earlier, many founders may decide to just abandon their project and start over with a legal offering.
This is just my personal opinion and nobody knows for sure what will happen if the SEC classifies Ethereum and other coins as securities as Gensler suggests. However, I feel that many project founders and development teams will simply abandon their projects to avoid any legal trouble. Think about it, if you already made millions of dollars, would you risk jail time to keep running a possibly illegal crypto project? I doubt it. Most will simply shut it down and wait for the SEC to prosecute a few big names. Then once the smoke clears, they will come back with legal coin offerings and projects that fully comply with the new laws.