The highly anticipated Ethereum Merge has been driving momentum for the asset and broader crypto market over the past week, but there could be negative regulatory implications.
There are several bullish factors for Ethereum’s transition to proof-of-stake in September. A massive reduction in network energy consumption and deflationary issuance are two of the major ones. However, there could be a negative outcome especially if anti-crypto financial regulators in the United States decide that Ethereum has now qualified as a security.
On July 24, Professor of law at Georgetown University Law Center, Washington D.C., Adam Levitin, proposed a scenario in which ETH could be classified as a security.
Is Ethereum an ‘investment contract’?
Securities and Exchange Commission chief Gary Gensler is on an enforcement-driven mission to secure his agency’s control over crypto. If the SEC succeeds, the majority of tokens could be treated as securities and regulated the same way stocks are.
According to Levitin, any token in a proof-of-stake network is likely to be considered a security. A security, as defined by the Howey Test used in a Supreme Court ruling way back in 1946, refers to an “investment contract” in which profits are expected.
The test attempts to determine if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
It requires an investment, which in the case of Ethereum would be staking with the expectation of profit being the staking reward – currently around 4.2% APY. This satisfies the common enterprise requirement but the “solely from efforts of a third party” is a gray area because stakers are also network participants giving some form of “work” in return by validating blocks.
Levitin said that individual staker’s contributions are likely to be small relative to the total sum which could satisfy the “solely from the effort of others” criteria. “Now none of this answers the trickier question (IMHO) of who the “issuer” is when you’re dealing with a decentralized system,” he added as the debate rages on.
In June, Gary Gensler told CNBC that the only crypto asset he considers not to be a security is Bitcoin.
Ethereum technical analysis
Ethereum made another attempt to clear the $1,620 resistance zone. ETH even spiked above the $1,640 and $1,650 levels. However, the bears were active near the $1,660 level.
A high was formed near $1,662 and the price started a fresh decline. There was a downside break below the $1,560 and $1,550 levels. Ether price declined below the 50% Fib retracement level of the upward move from the $1,488 swing low to $1,662 high.
The price is now trading below $1,560 and the 100 hourly simple moving average. It is also trading below the 76.4% Fib retracement level of the upward move from the $1,488 swing low to $1,662 high.
However, it is still above the $1,500 support. Besides, there is a key bullish trend line forming with support near $1,500 on the hourly chart of ETH/USD. An immediate resistance on the upside is near the $1,530 level. The first major resistance is near the $1,550 zone and the 100 hourly simple moving average.
Source: ETHUSD on TradingView.com
If ethereum fails to rise above the $1,550 resistance, it could continue to move down. An initial support on the downside is near the $1,500 zone and the trend line.
A clear move below the trend line support might push the price towards the $1,480 support zone. Any more losses might even push ether price to the $1,400 support.
Hourly MACD – The MACD for ETH/USD is now losing momentum in the bullish zone
Hourly RSI – The RSI for ETH/USD is now below the 50 level
Major Support Level – $1,480
Major Resistance Level – $1,550
There could be some turbulent macroeconomic news in the U.S. this week which could cause more volatility for Ethereum and crypto markets.
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