SEC’s Investigation Unveils Ethereum Regulatory Conundrum

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SEC’s Investigation Unveils Ethereum Regulatory Conundrum

Last updated on May 18th, 2024 at 11:38 am

A fresh unredacted filing from Consensys’s lawsuit against the U.S. Securities and Exchange Commission (SEC) unlocks private information about SEC Chair Gary Gensler’s long-term stance on Ethereum, the world’s second-largest cryptocurrency. The document reveals that Gensler called Ethereum unregistered security last year.

The SEC’s interest in ETH began to grow in March 2023, when Gurbir Grewal, currently the Director of the Division of Enforcement for the SEC, authorized a formal investigation to determine the security status of ETH. This investigation required me to present subpoenas to different entities and associations connected with the Ethereum token, and the SEC managed to keep the investigation confidential by sending subpoenas to recipients of the subpoena with a gag order.

SEC Investigates Consensys, Sends Warning to Ethereum Backer

Consensys, a well-known backer of the ETH project, was among the firms that the SEC subpoenaed and received a “Wells” notice from the regulator in April of that year. Chair Gensler’s tone in his responses to Congressman Patrick McHenry during a congressional hearing in April 2023 was non-committal on whether ETH qualifies as a security. Surprisingly enough, the SEC gave the green light to the investigation of Ethereum only a few days after the Congressional hearing.

During a recent interview in a New York Magazine, Gensler compared ETH to an unregistered security. This demonstrates a difference from his previous classification of ETH as a non-security at MIT. The shift of Ethereum from the proof-of-stake consensus mechanism has probably led to this change in perception.

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Meanwhile, the SEC’s perspective on ETH confounded the crypto space when the SEC approved Ethereum futures ETFs. USA Today’s ETF analyst Nate Geraci voiced perplexity over this move that appeared to contradict the idea of Ethereum being deemed a non-security commodity.

The SEC’s investigation of ETH highlights the challenges the industry faces in classifying cryptocurrencies at the regulatory stage. The regulatory bodies will provide more clear rules regarding Ethereum or any of the other cryptocurrencies as the industry continues to scale.

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Maxwell is a crypto-economic analyst and Blockchain enthusiast, passionate about helping people understand the potential of decentralized technology. I write extensively on topics such as blockchain, cryptocurrency, tokens, and more for many publications. My goal is to spread knowledge about this revolutionary technology and its implications for economic freedom and social good.