Will XRP Overtake Ethereum as SEC Moves to Classify ETH as Security

With the SEC moving to classify Ethereum as a security, the big question is whether XRP would be able to overtake ETH’s market cap.

The crypto community has been engulfed in a series of debates following reports that the United States Securities and Exchange Commission is considering classifying Ethereum (ETH), the second-largest cryptocurrency by market cap, as a security.

SEC Moves to Classify ETH as a Security

Popular media outlet Fortune reported yesterday that the SEC is pursuing a legal campaign that could help classify ETH as a security. Citing sources familiar with the matter, Fortune disclosed that the securities regulator subpoenaed several U.S. crypto businesses in relation to its ongoing investigation into Ethereum.

In particular, the SEC reportedly requested documents and financial records that U.S. companies have while dealing with the Ethereum Foundation.

The action poses a major threat to the hopes of the SEC approving a spot ETF for Ethereum this year like it did for Bitcoin.

Influential Figures React

Although the SEC has not officially commented on the development, the report has stirred several reactions among top U.S. officials and crypto enthusiasts.

Commenting, Congressman Patrick McHenry, the Chairman of the House Financial Services Committee, characterized the SEC’s move as contradictory to its prior views about ETH and the CFTC’s assessment of the coin.

He reminded the SEC that the United States Congress is responsible for deciding its jurisdiction and budget, adding that Chair “Gary Gensler cannot make it up as he goes along.

Interestingly, McHenry retweeted a Congressional hearing last year when Gensler refused to comment on whether ETH is a security or commodity.

Reports indicate @GaryGensler is moving to unilaterally classify #ETH as a security.

This is contrary to the @CFTC’s assessment and the @SECgov’s prior actions.

Congress decides the SEC’s jurisdiction and budget, Chair Gensler doesn’t get to make it up as he goes along. https://t.co/83DUkCjMVA

— Patrick McHenry (@PatrickMcHenry) March 20, 2024

It is worth noting that the SEC’s latest action is considered to be a challenge against the U.S. CFTC, which believes that ETH is a commodity and not a security.

Fox Business journalist Eleanor Terrett believes that if the SEC succeeds in classifying ETH as a security, the commission would indirectly say “sc**w you” to the CFTC, which happens to be its sister agency.

SEC New Move Contradicts Its Past Actions

As Congressman McHenry mentioned earlier, the SEC’s latest action contradicts its previous actions regarding Ethereum.

Recall that the SEC, through Bill Hinman, former Director of Corporation Finance, declared ETH as a non-security in 2018. Hinman argued that ETH is not a security because it is sufficiently decentralized.

Since the declaration, the SEC has not labeled ETH a security in any lawsuit against U.S.-based crypto businesses.

Possible Factors Influencing SEC New Actions

However, many developments have happened over the years that could have prompted the commission to shift its stance.

For instance, Ethereum switched to Proof-of-Stake (PoS) from a proof-of-work (PoW) consensus algorithm, a major thesis on which Hinman based his argument when he classified Ethereum as a non-security in 2018.

In addition, the New York Attorney General’s (NYAG) Office labeled ETH as a security in a lawsuit against KuCoin. Furthermore, the SEC also gave Prometheum the green light to custody Ethereum as a security.

Will XRP Overtake Ethereum?

With the SEC planning to categorize Ethereum as a security, some crypto enthusiasts have debated whether a potential lawsuit against the Ethereum Foundation would wreak havoc on ETH’s price, thus allowing XRP to overtake it.

This argument is fostered majorly by XRP enthusiasts who witnessed how the SEC’s legal action against Ripple cemented ETH’s position as the second-largest crypto by market cap.

Recall that before Hinman’s speech, both ETH and XRP were involved in stiff competition regarding which crypto asset would become the second biggest cryptocurrency by market value.

Shortly after Hinman declared Ethereum a non-security, several investors channeled more funds to the ETH, believing the asset was out of the SEC’s jurisdiction.

This could change overnight if the SEC officially categorizes Ethereum as a security. XRP has already received legal clarity after a multi-year legal battle between Ripple and the SEC.

As reported earlier, a federal judge declared that XRP in itself is not a security. The order implies that XRP is currently out of the SEC’s jurisdiction unless the regulator appeals the decision.

However, it remains to be seen whether XRP can overtake Ethereum if the SEC officially declares ETH a security.

In the meantime, ETH is ranked as the second-largest cryptocurrency, with a market cap of 417.6 billion. Conversely, XRP is sitting as the sixth-largest with a valuation of $33 billion.

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