MicroStrategy’s Michael Saylor Believes Ethereum Can Be Classified As A Security

Table of Contents

• “Its Obvious Ethereum Is A Security” 
• Defining A Security 
• The SEC’s Definition 

MicroStrategy CEO Michael Saylor spoke about a range of topics in a recent interview, including cryptocurrencies such as Bitcoin and Ethereum, where he spoke at length about the classification of both assets and if he believed that they were securities or commodities. 

“Its Obvious Ethereum Is A Security” 

During the interview, Saylor spoke at length about Ethereum and stated why he believed it was a security, not a commodity. He commented on it, stating, 

“I think it’s pretty obvious it’s a security. It was issued via an ICO [initial coin launch]. There’s a management team. There was a pre-mine. There’s a hard fork. There are continual hard forks. There’s a difficulty bomb that keeps getting pushed back.”

The MicroStrategy CEO also stated that the difficulty bomb implemented by the developers to increase the difficulty of mining ETH could completely wipe out the Ethereum mining industry. He also believes that Ethereum’s feature to delay the difficulty bomb makes ETH a security, not a commodity. 

“For it to be a commodity, there can’t be an issuer, and the truth is you can’t really make decisions. One of the fundamental insights in the crypto industry is the fact that you can change it is what makes it a security. Suppose you look at most of these cryptos, where they have hard fork after hard fork after hard fork. In that case, the problem with a hard fork is changing the protocol means that some development team is making a decision. If you can change the protocol in a material way, you can change the monetary protocol. A hard fork can change the issuance pattern, or it can change the value of something. So that makes an investment contract under securities law.”

Defining A Security 

A security is defined as a tradeable, fungible financial instrument that holds monetary value. It also represents the ownership of an asset such as a publicly-traded company, bond receivable, or the ownership rights represented by an option. In the United States of America, the Howey test is used to determine if an asset meets the definition of a security. Most of the tokens and cryptocurrencies launched through an ICO meet the definition of a security under the Howey test.

According to Saylor, Ethereum, issued through an ICO in 2015, could come under the definition of an “investment contract.” If this is the case, then ETH would not fall under the definition of a commodity, but that of a security, governed by far more stringent rules. 

Why Is ETH A Security According To Saylor? 

Saylor added that Ethereum has its own management, unlike Bitcoin, and was partly pre-mined. He also stated that the protocol undergoes frequent hard forks and changes. Saylor believes that for any digital asset to be called a commodity, it has to be supported by a completely decentralized protocol that can’t be changed at will. 

Bitcoin also does not have an issuer, and neither will it have one, with all BTC mined by miners, whereas Ethereum has issuers. 

The SEC’s Definition 

While Saylor is not the only one who thinks about Ethereum in this way, the SEC does not agree with his view. The Securities and Exchange Commission is the agency that oversees the securities market in the United States of America, and under its definition, Ethereum is a commodity like Bitcoin. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.