NYAG: Ethereum is a security token

Yesterday, the New York Attorney General’s (NYAG) office issued a press release explicitly saying that “Ethereum (ETH) is a security”.

New York Attorney General Letitia James is well known to the crypto world for filing a lawsuit against Tether and Bitfinex that ended in February two years ago with a simple $18.5 million fine.

This time it went after another exchange, KuCoin, guilty of selling unregistered security.

The KuCoin case

NYAG release states that Letitia James filed a lawsuit against KuCoin for failing to register as a security broker-dealer, and falsely representing itself as an exchange (i.e., an exchange).

Office of the Attorney General (OAG) was able to buy and sell cryptocurrency on KuCoin in New York even though the company was not registered in the state.

The lawsuit is still pending, meaning there is no judge’s ruling on it yet, and Letitia James’ goal is to try to stop KuCoin from operating in New York State. She has also requested that access to the exchange’s Web site be blocked.

The prosecutor said her office is taking action against all crypto companies that are ignoring state laws and “putting investors at risk”.

Certainly, KuCoin does not appear to be duly registered to operate in New York State, and if the OAG can prove in court that this is the case, the court may take action on the matter.

But the most interesting thing is not this, both because KuCoin is an exchange that operates primarily in Asia, and because there are already several unregistered exchanges that do not offer crypto services to New York State residents.

What is more interesting is the passage in the same press release from the NYAG office stating that virtual currencies including ETH, LUNA, and TerraUSD (UST) can be bought and sold on KuCoin.

They write:

“The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to holders of ETH. Because of that, KuCoin was required to register before selling ETH, LUNA, or UST.” 

This is a very similar concept to that expressed recently by SEC Chairman Gary Gensler, who said that the fact that there is a team behind Ethereum working to make ETH gain value, and thus make its owners gain as well, would make it an investment contract that promises financial returns.

Is Ethereum a security token?

Although those who buy ETH do not sign any contract, the hypothesis is that there is some sort of implicit contract that those who buy ETH do so because they hope that those who work on Ethereum will somehow increase its value.

It must be said that Gary Gensler‘s SEC has been trying for more than two years now to prove that XRP, or the cryptocurrency launched by Ripple several years ago, would be a security, but has not yet succeeded.

At this point, it becomes fair to imagine that it would be even more difficult to prove before a judge that ETH is.

Moreover, Letitia James is known for propagandistic initiatives, such as the one against Tether, which perhaps turn out, in the end, to be far less problematic than announced for precisely propagandistic reasons.

That is, the New York attorney general is trying to convince the courts, and especially her potential constituents, that she is making a pro-citizen, and particularly pro-crypto investor, case, but she may not succeed.

Now we will have to wait for the final ruling, which could come in several months or even years, to see whether the judge has accepted this argument or not.

However, it is important to note that the next election for New York State’s new attorney general will not be held until 2026. Letitia James, who belongs to the Democratic Party, won last year with 54.6 percent of the vote.

So currently there are leaders of two U.S. public organizations, Gensler of the SEC and James of the NYAG, who argue that Ethereum is a security (while Bitcoin is not).

It remains to be seen, however, whether they will find fertile ground among legislative and judicial authorities to get around to declaring the world’s second-largest cryptocurrency as such, or whether their initiative will end in a dead heat.