The American regulator indicated that Ethereum has become like a security, which has collapsed the cryptocurrency rate

Ethereum, the world’s second largest cryptocurrency, continues to fall in price after the long-awaited “merger” update, which resulted in the blockchain changing the Proof-of-Work algorithm to Proof-of-Stake. This was facilitated by the statement of the head of the US Securities and Exchange Commission (SEC) Gary Gensler, who believes that the transition to a new algorithm may be sufficient grounds for recognizing “ether” as a security.

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A major update to the Ethereum network took place last week, as a result of which miners were replaced by validators, network participants who left at least 32 Ethereum coins as collateral. These assets have moved to a business address where they cannot be bought or sold. Collateralized tokens work like lottery tickets: the larger the pledge, the more likely it is to receive a winning ticket, as a result of which the block will be recorded in the “digital ledger” of the Ethereum network, and its owner will be rewarded. This means that with the new algorithm, the determining indicator is not computing power, but the amount of pledged assets.

The SEC believes the transition to Proof-of-Stake means that people who invest in Ether and leave their assets as collateral treat their assets as something resembling securities, and not as to cryptocurrency. This is especially true in light of the fact that very few people use Ethereum to pay for real-world purchases. In particular, this position was supported by the head of the SEC, Mr. Gensler.

“From the point of view of the coin this is another indication that according to the Howey test, investors expect returns based on the effort of others”Gensler says. Recall that the Howey Test was developed by the US Supreme Court to determine whether a financial transaction is an investment in a security. It is considered positive if four conditions are met: funds are invested, the investor expects to receive a profit, investments are made in a common enterprise, the expected profit is related to the activities of other persons.

This position of the official in relation to Ethereum did not add optimism to crypto investors. As a result, the exchange rate accelerated the fall that began after the transition to the Proof-of-Stake algorithm. Last week, before the “merger”, the price of Ethereum reached $1740, now the second most popular cryptocurrency in the world is trading around $1350, and a little earlier the rate fell even below $1300. Since the switch last Thursday, the exchange rate has fallen by about 15%.

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In addition to Ethereum, the Proof-of-Stake algorithm is currently used by Cardano and Solana cryptocurrencies. At the same time, during 2022, Cardano fell in price by 80% compared to the maximum indicators of the previous year, and Solana – by 78%.

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