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Ethereum falls on report that the second-biggest cryptocurrency is under regulatory scrutiny

  • Ethereum, the second-largest cryptocurrency by market capitalization, falls 6 percent after The Wall Street Journal reports that it has come under scrutiny by regulators.
  • Securities and commodities watchdogs are looking into whether cryptocurrencies, which have largely escaped government oversight, should be regulated in the same way as stocks.
  • The cryptocurrency's creation in 2014 was "probably an illegal securities sale" in the eyes of some regulators, the Journal reports, citing people familiar with the matter.

Ethereum prices took a hit Tuesday after a report that regulators are exploring whether it and other cryptocurrencies should be treated like securities.

Both U.S. commodities and securities watchdogs are questioning whether the same rules for stocks should apply to these digital currencies, The Wall Street Journal reported Tuesday. Until now, cryptocurrencies have not been drawn into wider crackdowns by the Securities and Exchange Commission this year.

The cryptocurrency's creation in 2014 was "probably an illegal securities sale" in the eyes of some regulators, the Journal said, citing people familiar with the matter.

Ether, which has a roughly $65 billion market cap, fell about 6 percent Tuesday, and was trading near $652, according to data from CoinMarketCap.com.

The analysis is based on whether founders of virtual currencies 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, the Journal said.

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. In March, the agency said it is looking to apply securities laws to everything from cryptocurrency exchanges to digital asset storage companies known as wallets.

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

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, the Journal said.

Ethereum is the name of the company that created the digital token 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 companies like Microsoft and J.P. Morgan, is developing uses for the Ethereum blockchain.

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