In response to concerns about Ethereum's sale in 2018, the SEC is looking into the token's status as a security, marking a departure from prior guidance that did not categorize it as such. The investigation began on March 28, 2023, with the SEC's Division of Enforcement given subpoena authority on April 13, 2023. The SEC's examination contrasts with the CFTC's prior classification of Ethereum as a commodity, and the legal challenge from Consensys questions the SEC's authority to determine its classification.
SEC Probes Ethereum's Security Status, Sparking Legal Challenges and Market Uncertainty
The United States Securities and Exchange Commission (SEC), under the leadership of Chairman Gary Gensler, has been conducting an ongoing investigation into the classification of Ethereum as a security since 2018, according to reports from Fox Business.
This investigation has been brought to light through a lawsuit filed by Consensys, a blockchain software company, which has challenged the SEC's Division of Enforcement's formal probe into "Ethereum 2.0," initiated on March 28, 2023. The SEC authorized the investigation on April 13, 2023, granting the agency authority to issue subpoenas to individuals and entities involved in Ethereum transactions.
The SEC's investigation centers on the potential existence of unregistered offerings and sales of Ethereum dating back to at least 2018. This marks a departure from the agency's earlier stance under former Chairman Jay Clayton, who did not categorize Ethereum as a security.
The SEC's current position on Ethereum appears to conflict with the Commodity Futures Trading Commission's (CFTC) previous classification of Ethereum as a commodity. Consensys's preemptive legal challenge contests the SEC's authority to determine Ethereum's classification.
Gary Gensler has refrained from publicly confirming the agency's position on Ethereum, despite inquiries from the House Financial Services Committee. The SEC's scrutiny of Ethereum raises questions about its legal status and casts doubt on the future of Ethereum-based financial products, including the potential for a spot Ether exchange-traded fund (ETF).
According to Reuters, the SEC is expected to reject spot Ethereum ETF applications in the coming month. This news has contributed to a decline in the cryptocurrency market, with the total market capitalization falling by 3.1% to US$2.44 trillion as of 3 p.m. ET, according to CoinGecko. Ether, the native cryptocurrency of the Ethereum network, has witnessed a drop of nearly 5% to US$3,171 in the past 24 hours.
The SEC's investigation and the legal challenges surrounding Ethereum's classification underscore the evolving regulatory landscape for cryptocurrencies. As the crypto market continues to mature, regulatory oversight and enforcement actions are expected to shape its development and trajectory.
