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One of the aspects of the switch to PoS that flew under the public radar is that Ethereum 2.0 can be interpreted as security. The simple Howie test shows that now validators do not need to use their work (mining with their equipment) to receive income meaning that they are not earning money, but investing and reaping rewards. The SEC did not miss out on an opportunity to start talking about more regulations.
The switch revealed some issues with Ethereum’s model
Bitcoin is way too huge for the SEC to handle right now. Ethereum, on the other hand, is not only smaller in terms of market cap, but also losing value. It has been 4 weeks in a row of cash outflow despite the merge. The event was overhyped by enthusiasts and developers.
The merger does not bring anything substantial except a massive reduction in energy use which was done, presumably, to reduce carbon emissions and increase the attractiveness of the asset in the eyes of conservative investors. However, the reduction could have been achieved by forcing miners to switch to solar and wind energy.
The utility of the network did not improve. While the ability of dApps to handle thousands of transactions using the layer 2 rollup method is great, the layer 1 network is losing heavily to emerging projects like Algorand that can handle 6000 TPS after the latest upgrade. It means that ETH is losing the efficiency race. Simultaneously, the price of the token has been only falling since the merge.
If the SEC wants to make a move, it is good timing. Currently, the US government is drafting regulatory legislation which may mean a significant contraction of the network and delisting of multiple projects.
Should you move your investments from Ethereum?
While not financial advice, our suggestion is to take a closer look at the situation around legal regulations of cryptocurrencies. It may be a good idea to reevaluate your portfolio and focus on Bitcoin and emerging platforms like Algorand and Cardano. The SEC’s pursuit of Ethereum is now inevitable.
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