JPMorgan: Hinman Documents Could Boost Ethereum and Improve Decentralization 

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Chimamanda U. Martha
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Leading American financial services company JPMorgan has highlighted the significant impact of the release of the Hinman documents on Ethereum in an ongoing court case between the United States Securities and Exchange Commission (SEC) and blockchain firm Ripple Labs.

According to reports, Hinman’s documents, which include emails tied to former SEC Director William Hinman’s 2018 speech regarding Ethereum (ETH) regulatory status, can potentially boost the second-largest crypto asset and ignite a movement towards greater decentralization in the space.

In the speech, the former SEC director of the Division of Corporation Finance unit said ether is not considered a security in the eyes of the financial regulator. This contrasts the SEC’s position on XRP, which it has classified as a security.

The SEC’s lawsuit against Ripple alleges that the company sold XRP as an unregistered security. Last week, the blockchain-based company made Hinman’s emails public as part of its defense against the SEC’s civil suit shedding light on a crucial aspect of its argument with the Commission.

SEC Unsure of Ether Legal Status

In a report published June 15, JPMorgan’s analyst Nikolaos Panigirtzoglou said that SEC officials were unsure of Ethereum‘s legal status in 2018. The report notes that the Hinman documents acknowledged the existence of an “other category” where certain assets, like ether, do not fit the traditional definition of securities.

While there may be a need for regulation to protect consumer’s interest, the crypto asset is not deemed a security due to its lack of a controlling group as defined by the Howey Test – a legal criterion used to determine if an investment qualifies as a security, according to the report.

Furthermore, the documents are expected to influence the ongoing US congressional efforts to provide a clear regulatory framework to govern the crypto industry.

“The Hinman documents are likely to influence the direction of the current US congressional effort to regulate the crypto industry in a way that ether would avoid being designated as a security,” said Panigirtzoglou.

JPMorgan Proposed to Regulate Ethereum as Commodities

JPMorgan proposed in its research to place ether in the same category as Bitcoin (BTC) and regulate it as a commodity under the oversight of the Commodity Futures Trading Commission (CFTC).  Last year, two US senators, Sens. Cynthia M. Lummis, and Kirsten Gillibrand, signed a bill that gave the CFTC authority to regulate cryptocurrencies that fall under the commodities category.

According to the report, this approach would establish a new “other category” tailored explicitly to decentralized cryptocurrencies like ether that manage to fall outside the SEC’s jurisdiction.

Additionally, the report stated that the level of decentralization of a crypto could determine whether it is designated as security.

“A new “other category” could be introduced specifically to ether and other cryptocurrencies that are decentralized enough to avoid being classed as securities. The more decentralized a cryptocurrency is, the higher its chance that it would avoid being designated as a security,” the bank said.

Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.