In a joint effort, Republican lawmakers led by House Financial Services Committee Chairman Patrick McHenry and House Agriculture Committee Chairman Glenn Thompson have asked the chairman of the Securities and Exchange Commission ( SEC), Gary Gensler, to provide further clarification on the agency's stance regarding the custody of ethereum (eth) by Prometheus.
Lawmakers, including Representatives French Hill, Dusty Johnson, Tom Emmer and Warren Davidson, expressed concern about the lack of transparency in the SEC's special purpose broker-dealer (SPBD) regime and the potential ramifications of allowing Prometheum continue with your custody services for eth.
Recognition of ethereum as unsafe
in its letter Sent on Tuesday, the lawmakers emphasized the prior recognition of ethereum by the SEC and the Commodity Futures Trading Commission (CFTC) as a worthless digital asset.
Based on this precedent, they noted that the current SEC regulatory framework does not allow SPBD custody of non-security digital assets. Lawmakers also warned that allowing Prometheum to proceed under these circumstances could have “irreparable consequences” for the digital asset markets.
Republican lawmakers urged Chairman Gensler to clarify the SEC's position on several key issues, including the ability of SPBDs to custody non-securities, the SEC's approach to addressing SPBD noncompliance, the regulatory classification of ethereum, and the SEC's specific stance regarding the recent Prometheum announcement. .
The letter further raised concerns about the lack of a clear definition of “digital asset securities” and the SEC's inability to provide comprehensive guidance or propose rules for the classification of assets within the digital asset market.
Lawmakers also expressed disappointment in Chairman Gensler's refusal to recognize ethereum as a not security digital asset, stating that its “unwillingness” to clarify the treatment of eth has contributed to the confusion and uncertainty surrounding its classification.
Lawmakers urge resolution
Lawmakers criticized the SEC for creating “uncertainty” among regulated entities by failing to identify which digital assets should be considered “digital asset securities.”
They referenced time frames established to facilitate digital asset securities trading and custody services. The SEC's Division of Trading and Markets issued a no-action letter to FINRA in September 2020 outlining the conditions for registered stockbrokers to operate an Alternative Trading System (ATS) that trades digital asset securities. The letter also says:
Despite this history of recognizing ethereum as a worthless digital asset, you have consistently refused to recognize that eth is not a security. In his March 2023 testimony before the House Financial Services Committee, he refused to answer multiple questions about whether eth should be considered a commodity. Their unwillingness to clarify the treatment of eth only exacerbates the confusion and uncertainty regarding eth classification, as demonstrated by the Prometheum announcement.
Ultimately, the letter emphasized the need for regulatory clarity and a comprehensive approach to digital asset classification to minimize uncertainty and encourage growth within the digital asset ecosystem.
They asked President Gensler to address their concerns promptly, considering the potential implications for market participants and the broader digital asset markets.
Chairman Gensler and the SEC have yet to formally respond to the letter, but the industry expects further developments as the regulatory landscape for digital assets continues to evolve.
Featured image from Shutterstock, chart from TradingView.com
