In 2018, the SEC’s official stance -- espoused by Bill Hinman, SEC’s director of the Division of Corporate Finance -- was that Bitcoin and Ethereum were not securities.

You might’ve been one of many people who either agreed or disagreed with him back then. But that was the official SEC stance.

He said on CNBC: “We're comfortable in some sort of viewing these as items that don't have to be regulated as securities.”

Hinman explained that the key determinant for a crypto being a security was the presence of a third-party promoter and the expectation of a financial return from their efforts. An example of a third-party promoter in a traditional security would be a company's executive team or its founders when they are raising capital through an initial public offering (IPO).

The Howey Test helps make this decision. It looks at whether investors expect to make money mainly from the promoter's work.

According to Hinman…

In Bitcoin and Ethereum's case, their value and operation are determined by a collective network of participants, not by a central authority, aligning with the Howey Test's criteria for non-securities.

You can watch him explain this on CNBC right here.

Again, you can disagree with his opinion or you can agree with it.

Either way, that was the stance of the SEC in 2018.

Recently, there’s been speculation that shady backdoor deals were involved between the Ethereum Foundation and Bill Hinman. And that some of the founders of Ethereum didn’t believe Ethereum could truly have been called “decentralized” at that point in its evolution, despite what Hinman said.

This is known as “ETHGate.”

And here’s why there’s a lot of talk of it on the X-bird app right now.

“Fraud Bigger Than FTX”

Over a week ago, former Ethereum Foundation advisor Steven Nerayoff (@StevenNerayoff on X) implied he had information that would reveal a “fraud bigger than FTX."

Nerayoff posted article links to that effect, implying he was about to release a “bombshell.”

The crypto news feeds went wild.

On a live Spaces call, Nerayoff said he would release the proof within a few days.

Well, true to his word, he did release… something.

But it wasn’t what many of his followers expected.

He released a series of conversations with Ethereum founder Vitalik Buterin in 2014. In the transcripts, Nerayoff offered his opinions on the Ethereum Foundation.

I read through the transcript.

The conversation consists of challenges Ethereum was facing, potential strategies for restructuring, and addressing various organizational, legal, and financial issues.

I didn’t find anything by way of SBF-level fraud.

Since its release, Nerayoff has backpedaled a bit, saying this is just an interesting piece of Ethereum history and to show his early involvement in Ethereum.

He wrote:

“The recording isn’t directly related to the fraud but will illuminate a lot of what was happening & show my involvement. The fraud will be in the lawsuit.”

One might wonder why he didn’t say that from the outset. But I suspect the answer is fairly obvious:

“Fraud Bigger Than FTX” gets eyeballs.

“Interesting Ethereum History” doesn’t.

Nerayoff has since implied he has evidence of something more "insidious than Jekyll Island." And that when he "can tell the full story people will be shocked." It's much worse than you can imagine, he says: "Jekyll Island on steroids."

Pretty bold statements.

If he truly does have something groundbreaking, the Ethereum price isn’t listening.

Dump Incoming?

My quick take…

The concerns voiced in the recordings do not equate to concrete proof of fraud. If anything, they reveal Vitalik Buterin’s eagerness to make sure their bases were covered.

Always undersell and overdeliver.

Nerayoff did the opposite.

Ethereum shrugged.

I don’t claim to have any special knowledge on what Nerayoff is going to do next, but I suspect Ethereum is going to be fine.

Most of the time, stories like these are noise.

That said…

We’re keeping a close eye.