April 23, 2024

U.S. Congress Pressures SEC Amid Crypto Custody Operation Unveil

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As Prometheum Inc. gears up to initiate a groundbreaking custody operation for Ethereum tokens (ETH), a move poised to mark a milestone in U.S. crypto history, congressional allies of the industry are pressing the Securities and Exchange Commission (SEC) for clarity on its regulatory stance.

In a letter addressed to SEC Chair Gary Gensler, Republican chairmen of the House Financial Services and Agriculture committees, along with 46 other members of Congress, voiced concerns over the potential repercussions of Prometheum’s plans to offer custodial services for ETH. The letter, signed by prominent figures including Rep. Patrick McHenry (R-N.C.) and Rep. Glenn “GT” Thompson (R-Penn.), underscores the urgent need for regulatory clarity in the face of this unprecedented development.

Prometheum had initially slated the launch of its ETH custody service for the first quarter of this year, although a spokesman indicated on Tuesday that the rollout is now expected to occur next quarter.

The lawmakers argue that ETH, unlike a security, falls outside the purview of securities regulation, making it impermissible for a securities firm like Prometheum to handle. They criticized Gensler for his reluctance to definitively classify ether as a security, emphasizing the resulting confusion in the wake of Prometheum’s announcement.

The classification of ETH has been a subject of contention between the SEC and the Commodity Futures Trading Commission (CFTC), with the latter categorizing ETH within its commodities jurisdiction. However, the SEC’s stance on ETH remains ambiguous, particularly following the 2022 Merge update, which transitioned Ethereum to a proof-of-stake consensus mechanism.

The emergence of Prometheum as a potential custody provider signifies a pivotal juncture in U.S. crypto regulation. Gensler has previously cited Prometheum as an example of a firm navigating regulatory requirements to operate legally in the crypto space. However, the SEC’s decision regarding Prometheum’s operations could have profound implications for the industry’s compliance landscape.

While ETH is not registered as a security with the SEC, lawmakers argue that it cannot be treated as such by Prometheum. Nonetheless, company leaders have contended that it is not their responsibility to register the assets they intend to manage and trade.

Congress has been actively pursuing legislation to delineate the regulatory framework for crypto in the U.S. Although some bills have progressed in the House of Representatives, progress in the Senate has been slower-paced, prolonging the uncertainty surrounding crypto regulation in the country.

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