The Securities and Exchange Commission (SEC) of the United States has halted its inquiry into whether Ethereum (ETH) should be designated as a security.
This action comes after Consensys, a software company for Ethereum, filed a legal complaint contesting the SEC's position on Ethereum.
This decision is significant for the cryptocurrency sector, especially regarding the oversight and classification of digital assets.
On April 25th, Consensys filed a legal complaint with the Federal Court of Texas, which disclosed the SEC's stance on Ethereum.
The complaint revealed that the agency and its Chairman Gary Gensler had considered ETH security for quite some time.
Gary Gensler contended that Ethereum was an unregistered security, thus rendering its trading illegal under federal laws.
This assertion was backed by documents from March 28, 2023, which indicated that the SEC's Division of Enforcement, under the leadership of Gurbir Grewal, had launched a formal investigation into Ethereum's classification.
Codenamed Ethereum 2.0, the investigation sought to establish whether Ethereum had been involved in unregistered offerings and sales of ETH since 2018.
During the Ethereum 2.0 investigation, the SEC's enforcement staff issued subpoenas to individuals and companies involved in cryptocurrency transactions, sparking discussions about a potential approval of a spot Ethereum ETF.
On June 7th, Consensys wrote to the SEC requesting the closure of the investigation, citing the recent approval of spot Ether ETFs as evidence that ETH should be classified as a commodity instead of a security.
In response, the SEC, through a letter shared by Consensys senior counsel Laura Brookover, confirmed that the agency has no plans to take any enforcement action against Ethereum.
Closure of the ETH SEC investigation
On June 19th, the SEC's Enforcement Division officially announced the conclusion of its investigation into whether Ethereum should be classified as a security.
Consensys confirmed that the SEC would not pursue charges claiming that the sale of ETH constitutes securities transactions, which is seen as a significant win for Ethereum developers and industry participants.
ETHEREUM SURVIVES THE SEC.
— Consensys (@Consensys) June 19, 2024
Today we’re happy to announce a major win for Ethereum developers, technology providers, and industry participants: the Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0.
This means that the SEC…
The closure of the investigation means the SEC has opted not to charge Ethereum, particularly since the sales of ETH are classified as sales of securities.
At the time of this writing, the price of Ethereum was just above $3,500, having gained 3.1% in the past 24 hours. According to CoinGecko data, Ethereum is 13.8% higher than a month ago.
Market Reactions and Broader Implications
The news was met with a positive response from the market, leading to a spot trading volume of $21 billion in the last 24 hours, as reported by CoinGecko.
The only time in the past month when ETH trading volume surpassed this was on May 24, which was the day after the SEC gave approval for Ethereum ETFs to be traded.
However, despite the positive response from the Ethereum community and the broader market, some industry leaders remain cautious.
Paul Grewal, the Chief Legal Officer of Coinbase, highlighted that while the SEC's ruling is a positive outcome for Ethereum, it doesn't resolve the broader regulatory uncertainties that the industry is grappling with.
He expressed concerns about the broader ecosystem and the promotional claims being made by other projects, and questioned the SEC’s regulatory approach and its application of the Howey test in the ETH securities investigation.
"But what about the ecosystem? What about the promotional statements? What about the efforts of others," he wrote. "How do you explain both this decision and the other projects maligned by the SEC’s broken Howey analysis?" he said.