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Why Ethereum Is “Obviously A Security”, Says Michael Saylor


Bitcoin bull and CEO of MicroStrategy Michael Saylor talked about Bitcoin, Ethereum, Cardano, and their asset classification in the United States. This topic has gained more importance over the last month as the Securities and Exchange Commission (SEC) Chairman Gary Gensler claimed only Bitcoin is a commodity.

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Other cryptocurrencies, such as Ethereum and Cardano, are at risk of being classified as securities, according to these statements. This could have negative effects on their respective ecosystems as users, developers, and projects would need to comply with stricter regulations.

In an interview with the popular YouTube channel Altcoin Daily, Saylor said Ethereum is “obviously” a security. Saylor claims that Ethereum’s “constant” changes, the fact that it was released after an Initial Coin Offering (ICO), and the difficulty bomb made ETH a security.

The latter is a mechanism to be implemented on the Ethereum mainnet that will progressively increase ETH’s mining difficulty. The network is migrating from a Proof-of-Work (Pow) to a Proof-of-Stake (PoS) consensus protocol and the difficulty bomb will prevent miners from maintaining the former blockchain.

Saylor said the following on the reasons 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 (…).

A commodity, according to the definition provided by Saylor, is resistant to change. A security is constantly changing and there are entities capable of controlling critical decisions (the difficulty bomb). Saylor concluded: If you can change an asset, it is a security.

Ethereum ETH ETHUSD
ETH’s price trends to the downside on the 4-hour chart. Source: ETHUSD Tradingview

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In that sense, the executive said that most cryptocurrencies fall under this category and are capable of approving the Howey Test, the mechanism used by the SEC to determine if an asset operates as a security.

On the other hand, Saylor explained, there are no entities capable of changing the fundamentals of a commodity, such as gold. The executive explained: that if you can change its characteristics, then it’s not a commodity.

In the coming months, as Ethereum completes its migration, the SEC and other regulatory agencies might lean towards classifying it as a security. ETH holders will be able to stake their assets and generate yield. Saylor explained:

The head of the SEC has said in 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.

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Saylor emphasized his point by stating that commodities don’t change and shouldn’t change or be upgraded in the case of digital assets. He concluded:

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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