The cryptocurrency community heaved a collective sigh of relief when the SEC declared that Ethereum is not a cryptocurrency. For the last few months, SEC has been in the news about regulating ICO's and determining whether cryptocurrencies are securities. They applied their test known as 'Howey' test for determining whether any form of investment is a security.
Under these guidelines, SEC officials declared yesterday that Ethereum is not a cryptocurrency. With that news, Ethereum rallied more than 10% and has raised its head above the $500 mark.
Implications on being deemed a security
Currently most exchanges are not licensed to list securities. Hence being deemed a security will mean that those exchanges who are under the purview of SEC in the US will have to cease trading for that cryptocurrency. That will mean liquidity suddenly drying up for it. Excess supply will get generated and will also lead to weak hands panicking and selling it out. That will definitely lead to a crash and weak sentiment for that cryptocurrency in the short term.