Prometheum, an “alternative” trading platform for crypto “securities” assets, has recently announced the launch of its custodial services for Ethereum (ETH). This move has significant implications for the legal status of the second-largest cryptocurrency by market capitalization. 

Fortune Magazine reported that the company’s strategy is to compel regulators, particularly the Securities and Exchange Commission (SEC), to recognize Ethereum as a security. 

SEC Pressured To Settle Ethereum Legal Status

Per the report, Prometheum, based in New York, has positioned itself as a compliant player in the crypto industry by claiming to have discovered a path to operate within existing laws. 

The company received regulatory approval in 2021 to operate as an alternative trading platform for securities. It gained further attention when it obtained a special-purpose broker-dealer license from the Financial Industry Regulatory Authority (FINRA).

The license allows them to operate as a broker-dealer in “digital asset securities,” a designation no other firm has achieved. This has prompted crypto companies and even members of the US Congress to call for investigations into the firm’s activities.

Previously, the SEC refrained from definitively classifying Ethereum as a security despite declaring several other cryptocurrencies as such. 

Prometheum aligns with the SEC’s assessment that most cryptocurrencies are securities and argues that Ethereum can be listed as a security under an exemption called Rule 144, typically used for trading restricted stocks. 

The embattled company claims it can use blockchain data to determine whether the assets have been circulating for over a year, a crucial factor in claiming the exemption.

What’s interesting is that Prometheum’s custodial services for Ethereum could potentially force the SEC to determine Ethereum’s legal status. The company’s registered status with FINRA and the SEC, prominently displayed on its website, adds weight to its claim. 

Legal experts and academics speculated that the SEC may be forced to rule on Ethereum’s classification due to Prometheum’s custodial launch. This decision could have far-reaching consequences for the crypto industry, challenging the industry’s argument that cryptocurrencies cannot operate under existing securities laws.

Backlash Mounts As Prometheum Shakes Up Crypto Regulations

SEC Chair Gary Gensler, who has intensified enforcement efforts following the collapse of FTX, has emphasized the sufficiency of existing rules while filing lawsuits against exchanges for failing to register with the agency. 

Prometheum’s approach contrasts with other crypto exchanges like Coinbase, which argue that the existing rules are outdated. Prometheum’s strategy has drawn criticism from the crypto industry and Republican lawmakers who accuse Gensler of supporting the firm to advance his regulatory agenda.

Overall, Prometheum’s introduction of Ethereum custodial services has thrust the debate over Ethereum’s legal classification into the spotlight.

This move could compel the SEC to decide whether Ethereum should be classified as a security, challenging the crypto industry’s argument for new laws. 

While the success of Prometheum’s approach is still uncertain, it remains to be seen how subsequent SEC administrations will respond and whether institutional investors will be attracted to Prometheum’s compliant approach.

Currently, ETH is trading at $2,428, reflecting a marginal 0.5% price increase in the last 24 hours.

Featured image from Shutterstock, chart from TradingView.com