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Ethereum is under regulatory scrutiny

Ethereum price fell on Tuesday, May 1 after a report that regulators are exploring whether it and other cryptocurrencies should be treated like securities.

According to the Wall Street Journal, both CFTC and SEC  are questioning whether the same rules for stocks should apply to these digital currencies. Until now, cryptocurrencies have not been drawn into wider crackdowns by the SEC this year.

People familiar with the matter said the cryptocurrency’s creation in 2014 was «probably an illegal securities sale» in the eyes of some regulators.

The analysis is based on whether founders of cryptocurrencies other than bitcoin have any control over their value, similar to how a company’s managers might influence a company’s stock value based on strategy and investments.

Two federal regulatory agencies have applied different definitions to what exactly a cryptocurrency is. The Commodity Futures Trading Commission has labeled them as commodities, meaning they’re exempt from SEC regulation. The SEC on the other hand, has indicated that it sees cryptocurrencies as securities.

Senior SEC and CFTC officials are among those scheduled to discuss the matter on Monday, said people familiar with the matter.

The Journal said the Ethereum Foundation raised more than 31 000 bitcoin in July 2014, worth about $18,3 million at the time, when it first sold the first 60 million Ether. Because investors were speculating that the launch would result in a rise in asset value, the deal resembled a security.

Ethereum is the name of the company that created the cryptocurrency Ether. The company created a platform for applications built on blockchain, the same technology that underpins Bitcoin. Ether was first launched as a fundraising effort to develop the platform.

A consortium called the Enterprise Ethereum Alliance, which includes firms like Microsoft and J.P. Morgan, is developing uses for the Ethereum blockchain.