After enjoying a much-needed rally, the crypto market is taking a breather as investors assess whether further gains would be sustainable in the short-term. Between April 12th and May 6th, the total market capitalisation increased by 26%, or $200 billion, to reach $470 billion. However, the total valuation eased to $420 billion last week as traders took a step back as the SEC and CFTC started discussions about the regulatory classification of Ether (ETH) and other cryptocurrencies last Monday. No decision will be taken in the coming days as the process is expected to last several weeks.
The working group is considering whether Ether should be considered as a security or not. This decision could have massive implications not only for Ether itself but also for the myriad of ERC-20 tokens that use the Ethereum blockchain. Bitcoin, the largest cryptocurrency by market capitalisation is not concerned with the discussions, as like other pure payment tokens, it has already been classified as a commodity by the CFTC.
If Ether is classified as security, it means the regulation that applies to stocks or bonds will apply to the cryptocurrency. Investor-protection laws will apply to Ether, while exchange that offer ETH trading services will must have a SEC license.
For now, it is very difficult to guess what would be the outcome as many contradictory rumours are on the street. Will regulators use the good old Howey test to settle the issue? Or will they wipe the slate clean and build a brand new legal framework that suits cryptocurrencies? The US has prospered mightily from the creation of the World Wide Web as they decided to embrace the revolution (before Crypto Valley, there was Silicon Valley, remember?). Therefore, we believe that taking a decision that would slowdown the adoption of the next revolutionary revolutionary technology could only hurt the country’s competitiveness and would benefit to more crypto-friendly countries.
The entire market will likely suffer in the next few days as the uncertainty persist. In case of a favourable outcome - i.e. ETH not being classified as security - be ready for another rally!
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