TECH

Ethereum drops sharply after US-SEC chief Gary Gensler's statement

Ethereum, the second largest cryptocurrency in the world, continues to fall in price after the long-awaited “merger” update, which resulted in the Proof-of-Work to Proof-of-Stake algorithm blockchain. This was facilitated by the statement by US Securities and Exchange Commission (SEC) chief Gary Gensler, who believes that the transition to a new algorithm may be reason enough to recognize “ether” as a security.

A major upgrade to the Ethereum network took place last week as a result of replacing miners with validators, network participants who have left at least 32 Ethereum coins as collateral. These assets have been moved to a business address where they cannot be bought or sold. Guaranteed tokens work like lottery tickets: the larger the pledge, the greater the probability of receiving a winning ticket, for which the block will be registered in the “digital ledger” of the Ethereum network and its owner will be rewarded. This means that with the new algorithm, the determining indicator is not computing power, but the amount of promised assets.

The SEC believes the transition to Proof-of-Stake means that people who invest in Ether and leave their assets as collateral treat their assets as something akin to securities rather than cryptocurrency. This is especially true in light of the fact that very few people use Ethereum to pay for purchases in the real world. In particular, this position was supported by the head of the SEC, Mr. Gensler.

“From a currency perspective, this is another indication that, according to the Howey test, investors expect returns based on the efforts of others,” Gensler said. Remember that the Howey Test was developed by the US Supreme Court to determine whether a financial transaction is an investment in a security. It is considered positive if four conditions are met: funds are invested, the investor expects to receive profit, investments are made in a joint venture, the expected profit is related to the activities of other people.

This official stance towards Ethereum did not add optimism to cryptocurrency investors. As a result, the exchange rate accelerated the fall that started after the transition to the Proof-of-Stake algorithm. Last week, before the “merger”, the price of Ethereum reached $1,740, now the second most popular cryptocurrency in the world is trading around $1,350, and just before that the rate dropped even below $USD. 1,300. Since last Thursday's move, the exchange rate has dropped by about 15%.

In addition to Ethereum, the Proof-of-Stake algorithm is currently used by cryptocurrencies Cardano and Solana. At the same time, during 2022, Cardano fell in price by 80% compared to the maximum indicators of the previous year, and Solana – by 78%.

AVnews