JPMorgan Says SEC May Not Classify Ethereum As A Security Because It's Becoming More Decentralized

JPMorgan Says SEC May Not Classify Ethereum As A Security Because It’s Becoming More Decentralized

Updated: 05 April 2024

Disclosure

Don’t invest unless prepared to lose all the money you invest. This is a high-risk investment, you shouldn’t expect to be protected if something goes wrong.

Join Our Telegram channel to stay up to date on breaking news coverage

Ethereum may escape being classified as a security by the Securities and Exchange Commission (SEC) because it is becoming more decentralized, JPMorgan said.

That’s due to staking platform Lido’s share of staked Ether (ETH) falling, which reduces concerns around concentration in the Ethereum network, said analysts led by Nikolaos Panigirtzoglou in a research note

“The share of Lido in staked ETH has decreased further from around one third a year ago to around a quarter at the moment,” the analysts said. “This should reduce concerns about concentration in the Ethereum network, thus raising the chance that Ethereum will avoid being designated as a security in the future.”

This matters because if Ethereum can avoid being classified as a security, the chances that spot Ether ETFs gain regulatory approval from the SEC increase exponentially.

JPMorgan’s prediction follows the release by the SEC in June last year of the Hinman documents, in which it said that a token operating on a “sufficiently decentralized” network might not meet the necessary requirements to be classified as a security.

After the release of the Hinman documents, analysts at the Wall Street giant said US lawmakers might come up with a new “other category” to accommodate Ethereum. This new category would offer investors protection while preventing regulators from classifying Ethereum as a security.

Ethereum Will Soon Become The Ultimate Settlement Layer

Ethereum’s recent Dencun upgrade was also mentioned in the report, with the analysts saying that the development will position the network as the “ultimate settlement layer for the Ethereum ecosystem.”

The Dencun hard fork has activated, and thanks to Blobscriptions the blob fee markets are now in "price discovery mode". pic.twitter.com/UhGigdGo5D

— vitalik.eth (@VitalikButerin) March 28, 2024

Layer 2 networks and emerging Layer 3 solutions will also all play a part in dramatically reducing the transaction costs on Ethereum, the analysts said in the report.

JPMorgan believes this could reduce the number of decentralized applications deployed on alternative Layer 1 blockchains, which will ultimately lead to an increase in Ethereum’s Total Value Locked (TVL).