The SEC has surprisingly dropped its investigation into whether Ether is a security, sparking debate over the motivations behind the decision and what it means for the future of crypto regulation.
The U.S. Securities and Exchange Commission (SEC) has unexpectedly closed its investigation into whether Ether (ETH) qualifies as a security. This development has sent ripples through the crypto community, raising questions about the motivations behind the SEC’s decision and its implications for the future of crypto regulation.
The Surprise Announcement
On June 19, 2024, the SEC officially ended its inquiry into Ether’s classification, leaving the crypto industry in a state of both relief and uncertainty. Laura Brookover, a lawyer for Consensys, indicated that the SEC’s decision was not entirely voluntary. Brookover suggested that the SEC was pressured to halt the investigation due to recent regulatory changes that treat Ether as a commodity.
Consensys’ Perspective
According to a letter from Consensys, the SEC’s approval of spot Ether exchange-traded funds (ETFs) implied an updated stance, categorizing ETH as a commodity rather than a security. This shift allegedly forced the SEC to “lift the subpoenas on Consensys.” However, the SEC has not officially confirmed this reclassification.
Expert Opinions
Carol Goforth, a professor specializing in securities regulation at the University of Arkansas, argued that the SEC’s approval of an Ether ETF does not automatically categorize ETH as a commodity. Goforth emphasized that the approval of an ETF is not linked to the underlying asset’s classification. She noted, “Approval of an ETF has nothing to do with the appropriate classification of the underlying assets in which the fund invests.”
Why the SEC Withdrew
Goforth believes the SEC’s retreat suggests the agency was uncertain about its ability to prove that ETH is a security under the Howey test, a framework used to determine if an asset is an investment contract. She speculated that the SEC wanted to avoid a potential court loss, which could undermine its previous statements about Ether’s classification.
In 2018, former SEC director William Hinman stated that Ethereum was not a security, citing its decentralized nature. His speech underscored that the network’s operations were sufficiently decentralized, making it difficult to classify ETH as a security. This stands in contrast to the SEC’s more recent scrutiny under Gary Gensler’s leadership.
The Continuing Struggle
Despite the SEC dropping its investigation, the fight for clear crypto regulations is far from over. The crypto community welcomed the SEC’s decision as a positive development for Ethereum, but uncertainties remain. Goforth pointed out that the SEC’s decision is not a final determination and could change in the future.
Consensys celebrated the decision as a significant victory but acknowledged that it does not resolve broader regulatory issues. The industry continues to seek a clear regulatory framework that ensures compliance and accountability while providing accurate information to purchasers.
Staking Under Scrutiny
The SEC’s focus has now shifted to other aspects of the Ethereum ecosystem, particularly staking. American crypto exchange Kraken recently settled with the SEC for $30 million and ceased offering staking services after the commission alleged that staking-as-a-service constituted a security. Coinbase CEO Brian Armstrong has indicated that the exchange is prepared to challenge the SEC in court over staking.
Goforth described staking as a complex issue where the SEC could allege an investment contract, irrespective of whether the underlying crypto asset is a security. This ongoing scrutiny highlights the need for a comprehensive regulatory framework.
A Glimmer of Hope
While the SEC’s decision offers a temporary reprieve for Ethereum advocates, the broader struggle for clear crypto regulations in the U.S. continues. The industry remains in a state of flux, navigating a tumultuous regulatory landscape. Recent developments provide a moment of optimism, but the quest for clarity and consistency in crypto regulation is far from over.
As the crypto industry watches closely, the SEC’s next moves will be critical in shaping the future of digital assets. For now, the withdrawal of the Ether investigation marks a significant, albeit temporary, victory for the crypto community.
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(DANIEL RAMIREZ-ESCUDERO, COINTELEGRAPh, 2024)