Michael Saylor Says Ethereum is ‘Obviously’ a Security

July 11, 2022

Reading Time: 3 minutes

Michael Saylor, the CEO of Microstrategy and Bitcoin bull talked about the classifications of Bitcoin and other cryptocurrencies in the United States, which in his words claimed Ethereum to “obviously” be a security, and here are his reasons;

According to the SEC’s chairman, Gary Gensler, cryptocurrencies like Cardano, and Solana are at risk of being classified as securities, which resultantly lead to stricter laws against these cryptocurrencies, of which their users will have to comply with their tightened regulations.

Speaking to Altcoin Daily on a YouTube channel, the Microstrategy CEO claimed that Ethereum is “obviously” a security, he said that Ethereum’s “constant” changes, being released after an initial coin offering (ICO) and the difficulty bomb made it a security.

The latter is a mechanism to be implemented on the Ethereum mainnet that will progressively increase ETH’s mining difficulty. ETH is gradually transitioning from the proof of work (Pow) to a proof of stake (Pos) consensus protocol of which the difficulty bomb will prevent miners from maintaining the former.

According to Michael Saylor on why Ethereum is “obviously a security”

“There is a (Ethereum) pre-mine, there’s a hard fork, you know there’s continual hard forks, there is a difficulty bomb getting pushed back. The difficulty bomb is going to wipe out the entire of ETH mining industry, The fact that somebody is able to murder an entire industry and then they keep changing their mind on whether to do it or not to do it.”

In a definition provided by Michael Saylor, a commodity is resistant to change, while a security is continuously changing, the fact that Ethereum is subjected to a change makes it a security.

So according to him, Bitcoin is not a security because it doesn’t change, unlike Ethereum which can transit.

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Will Ethereum 2.0 Bring Regulatory Complications?

Most cryptocurrencies under this class are capable of approving Howey Test, a mechanism used by the SEC to confirm if an asset operates as a security.

Saylor on the other hand said there are no entities capable of changing the fundamentals of a commodity like gold.

Very soon, Ethereum will complete its transition, and the SEC and other regulatory bodies might lean towards classifying it as a security. Ethereum holders will be able to stake their assets and generate yield. 

Saylor explained:

“The head of the SEC has said on six different occasions that if you generate staking off a crypto asset, that makes it a security. You can’t generate yield and not be a security.”

The governance that supports most decentralized finance (DeFi) protocols is another trade that these projects operate as securities. “Voting on something doesn’t make it decentralized” and voting can’t change the properties of the underlying asset.

He furthered by emphasizing his point that commodities do not change, and should not change or be upgraded in the case of digital assets. In his conclusion, he said;

“That’s the challenge in the crypto space, really, they are all securities. And the problem with it, is that they are all securities trading on exchanges that don’t have a license to trade securities (…). What will happen (with crypto) nobody knows?”

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