If a state court considers ether (ETH) a security, it could prompt federal regulators to take action against a major crypto asset, said Tonya Evans, a professor at Penn State University Dickinson Law.
On Thursday, New York State Attorney General Letitia James sued KuCoin for allegedly violating the state’s securities laws by offering tokens — including ether — that meet the definition of securities without registering with the attorney general’s office.
One of those tokens included in the lawsuit is the Ethereum blockchain ether, the second largest cryptocurrency by market cap. Seychelles-based KuCoin is the fourth largest crypto exchange in the world, according to CoinMarketCap. data.
If the New York Attorney General prevails, defining ether as a security could have huge ramifications for the crypto world, Evans said on CoinDesk TV’s “First Mover” Friday. Whether it is seen as likely depends on the approach state and federal regulators take in identifying digital assets, but she said she did not see how ether could be considered a security.
“I’m still unpacking this file by Attorney General James, to really understand how security is defined under state law. It obviously very much mimics a Howey test from [U.S.] “A Supreme Court case, of course, but more often than not at the state level,” Evans said.
Once there are “federal guidelines, rules, regulations, and laws that may get ahead of state law, a lot of times you’ll see things leak out of states and eventually implement them before [U.S. Supreme Court] to make the final decision. This is what we see often, she said, “in new and emerging asset classes and industries.
However, the US should be careful about alienating the cryptocurrency industry and forcing it out of the country because it will operate without US regulatory oversight to protect investors, she said.
“If we push this kind of ecosystem offshore, it’s going to be more and more difficult for lawmakers and regulators to actually get to the point of keeping this vibrant ecosystem in the United States with clear and specific rules,” Evans said.
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