Regulatory Scrutiny Threatens Ethereum’s Rise, Will It Succumb Under Pressure?

Ethereum has been seeing increased regulatory scrutiny in recent months. This comes following the network’s move to a proof of stake mechanism and the introduction of staking to the others. As sanctions have been levied against protocols such as Tornado Cash, it is becoming increasingly possible that regulatory bodies may turn their focus to Ethereum. Now, it seems the parameters for determining whose purview ETH falls under are being hashed out.

Ethereum Might Be A Security

Previously, the Securities and Exchanges Commission boss Gary Gensler had said that the top two cryptocurrencies, Bitcoin and Ethereum, did not qualify as securities. But this was when both of these networks were still firmly operating under a proof of work mechanism.

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With Ethereum’s move to proof of stake, the SEC is beginning to backtrack on the previous comments that Ethereum did not qualify as a security. It reasons that since there is now the availability of staking on the network, investors are currently “anticipating profits based on the efforts of others.” This gives it pause to say that the digital asset might now qualify as a security. It also follows the SEC boss’ view that most cryptocurrencies are currently operating as securities.

Meanwhile, the impact of Ethereum being classified as a security by the regulatory body has a lot of implications. The most prominent of these is that there are more ETH nodes running in the United States than in any other country, which would mean that a large majority of transactions would fall under the SEC’s purview.

Ethereum struggles to hold above $1,300 | Source: ETHUSD on TradingView.com

However, since these assets are yet to be classified as securities, there have been other speculations of what they could be classified as. The CFTC has previously been called to regulate the crypto industry, and Chairman Rostin Behnam has said that digital tokens are commodities and that the CFTC should be able to regulate them.

Will ETH Survive The Scrutiny?

Ethereum being regulated by either of these watchdogs can go a number of ways. Presently, it is expected that regulators will soon come out with a final classification for the digital asset and then put measures in place to regulate it as such. However, the price is likely to suffer for this.

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The sanctions against the crypto mixer Tornado Cash already have ETH investors at the edge of their seats. Adding more regulation for ETH could tank the price of the cryptocurrency. ETH is already struggling to hold above $1,000, and any regulatory action will likely send its price to sub-$1,000.

Such a move against Ethereum would also greatly impact the rest of the decentralized finance (DeFi) and NFT market, triggering rapid declines in values across the space. In the end, the winner would be assets like Bitcoin, which are truly decentralized and would serve as a safe haven for crypto investors.

Featured image from BeInCrypto, chart from TradingView.com

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