Ethereum: Can it beat SEC’s ‘security’ label? JP Morgan says…

• JPMorgan’s report sheds light on the decline in Lido’s staked Eth share.
• SEC had emphasized lack of network decentralization in evaluating Ethereum’s security status.

For the last couple of weeks, the Securities and Exchange Commission (SEC) has been actively pursuing an investigation into Ethereum [ETH], aiming to classify it as a security.

This investigation primarily revolves around Ethereum’s shift to proof-of-stake governance in September 2022. Additionally, a recent report by S&P Global highlighted the concentration risks associated with ETH staking, particularly with platforms like Lido. 

However, there is now a notable shift in sentiment, with JP Morgan suggesting growing optimism regarding Ethereum avoiding classification as a security.  

This was in light of how the staking platform Lido is experiencing a decrease in its share of staked Ether. Remarking on the same, Nikolaos Panigirtzoglou, an exec at JPMorgan suggested in a report,

“The share of Lido in staked ETH has decreased further from around one third a year ago to around a quarter at the moment.”

He further added, 

“This should reduce concerns about concentration in the ethereum network, thus raising the chance that ethereum will avoid being designated as security in the future.” 

The longstanding battle between SEC and ETH 

The analysts further highlighted insights from the Hinman documents which were made public in June 2023. The document emphasized the significance of network decentralization in the SEC’s evaluation of digital tokens’ classification as securities.

According to their findings, if tokens on a network demonstrate sufficient decentralization, the SEC is less likely to classify them as securities.

Criticizing the Hinman document’s last years insights, JPMorgan made a point 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.” 

Additionally, the Howey test, suggested any transaction considered an investment contract is classified as a security. Therefore, if Ether manages to dodge classification as a security, it would mark another significant victory for the cryptocurrency community.

This outcome would follow the pattern set by Ripple’s XRP, which faced similar classification challenges.

What’s on the price front? 

The ongoing challenges have directly affected ETH’s price performance in the second quarter of 2024 with the cryptocurrency experiencing fluctuations throughout this period.

As of the latest updates, ETH was trading at $3,273.40, after seeing a notable decline of 11.84% last month. 

However, if Ethereum can follow the steps of XRP’s success there’s potential for a turnaround for ETH in evading security designation. Such an achievement could trigger a substantial surge in Ether’s value and pave the way for the approval of its Exchange-Traded Funds (ETF).