SEC Halts Ethereum Probe to Sidestep ‘Embarrassing’ Court Battle

The United States Securities and Exchange Commission (SEC) recently made headlines by concluding its investigation into whether Ether (ETH) should be classified as a security. On June 19, 2024, the SEC unexpectedly put an end to this inquiry, a move that took many within the cryptocurrency sector by surprise. According to Laura Brookover, a lawyer for Consensys, this decision marks the end of SEC assertions that Ether is a security. Brookover suggested that the SEC’s decision was not voluntary; instead, it was a response to pressures to lift subpoenas on Consensys following the SEC’s recent approvals of Ether-related exchange-traded funds (ETFs), which implied that ETH is considered a commodity.

Consensys elaborated in a letter that the SEC’s green lighting of spot Ether ETFs signaled a pivot in its stance, now seemingly recognizing Ether as a commodity rather than a security. Despite Consensys’ assertions, the SEC has not publicly endorsed this view. There are, Differing opinions on what the ETF approval truly signifies.

Carol Goforth, a professor at the University of Arkansas School of Law, notes that the SEC’s approval of a spot Ether ETF does not automatically mean that ETH is classified as a commodity. She stresses that ETF approvals are independent of the underlying asset’s classification, pointing out that ETFs can include a variety of assets, from stocks to commodities. Goforth explains that the approval process for an ETF and the classification of its underlying asset are separate issues.

The critical question remains: why did the SEC decide to drop its investigation into whether Ether is a security? Goforth theorizes that the SEC may have concluded it would struggle to prove in court that ETH is a security. She suggests that the widespread holding and trading of Ether, along with market-driven profitability, complicate the SEC’s ability to classify ETH under the Howey test, which is used to determine whether an asset is a security.

Previous statements from SEC officials also play a role in this context. In 2018, former SEC director William Hinman stated that Ethereum was not considered a security, emphasizing that its decentralized nature was a key factor. Hinman’s remarks suggested that Ethereum’s operations were sufficiently decentralized, meaning investors did not rely on a single entity’s efforts to gain profits. This seemed to provide clarity on Ethereum’s status, conflicting with the current SEC administration’s ongoing scrutiny.

Despite the investigation’s closure, the battle over U.S. crypto regulation persists. While the SEC’s decision to stop its investigation may be seen as a victory for the Ethereum community, Goforth cautions that this is not a definitive conclusion. The letter from the SEC only mentions that the investigation has been halted “at this time,” leaving room for future scrutiny. Goforth states it’s premature to claim that the crypto industry is winning the regulatory battle due to ongoing uncertainties in crypto asset classification.

Consensys acknowledges the significance of this outcome but notes it does not resolve all issues faced by blockchain developers, technology providers, and other industry participants who have faced the SEC’s rigorous enforcement policies. Goforth advocates for a clear regulatory framework that provides accessible information to purchasers and ensures accountability for illegal activities.

The SEC has also been targeting staking, a crucial aspect of the Ethereum network. Recently, American crypto exchange Kraken settled with the SEC for $30 million and ceased offering staking services after the SEC alleged that its staking-as-a-service product constituted an unregistered security. Coinbase has also indicated a willingness to challenge the SEC in court over staking.

Goforth points out that the topic of staking is considerably more complex. The SEC has suggested that staking involves an investment contract, a stance that can be maintained independently of whether the underlying crypto asset is a security. The ongoing struggle to develop a comprehensive regulatory framework for the U.S. crypto industry persists as a significant challenge.

Though Ethereum supporters may find some solace in the current reprieve regarding Ether’s classification, the broader regulatory landscape remains volatile. The momentary clarity brought by the closing of the investigation provides a fleeting sense of relief amid the ongoing upheavals in the regulatory arena.

Terence Silverman

Terence Silverman

27 thoughts on “SEC Halts Ethereum Probe to Sidestep ‘Embarrassing’ Court Battle

  1. So now were supposed to believe Ether is a commodity without a formal statement? The SEC’s mixed signals are frustrating.

  2. Incredible! SEC dropping the Ether investigation is excellent news for us all. Keep striving for crystal-clear crypto regulations!

  3. ETH’s classification shouldnt be this ambiguous. The SEC is just kicking the can down the road.

  4. Dropping the investigation was unexpected and irresponsible. The SEC should be clearer on its stance on crypto assets.

  5. This back and forth with Ethers classification is exhausting. The SEC needs to step up and provide clear guidelines.

  6. The SEC ending its Ether investigation is proof of the community’s resilience! 🌐 Let’s keep up the momentum for fairer regulations. 🏛️👌

  7. A welcome surprise! The SEC ending its Ether inquiry is great news. Lets push for comprehensive crypto regulations now.

  8. Unexpected but amazing news! 🌠 SEC halting its ETH investigation is promising for Ethereum. On to tackling broader regulatory challenges! 🚀🔍

  9. Feeling hopeful! The SECs halting of Ether investigation is like a breath of fresh air. Time to rally for comprehensive regulatory clarity.

  10. Wow! SEC ending the investigation into Ether is huge! Lets leverage this moment to advocate for clear and fair regulation frameworks.

  11. Kraken, Coinbase, and others are still facing severe challenges. The SEC’s approach to staking further complicates things. 🤯

  12. The SEC is just bending to pressure rather than making a principled decision. This doesn’t bode well for future regulations.

  13. Fantastic development! Ending the SEC probe into Ether is good news for all of us. Remember, regulation clarity is the next frontier.

  14. Finally, some positive news for the Ethereum community! 🙌 The SEC’s move is a win for now, but we need clear regulations going forward. 🌐

  15. It’s disappointing that the SEC would cave in like this. We need stricter guidelines, not more confusion.

  16. Great news from the SEC! Ending the Ether investigation gives us hope for a better regulatory environment. Let’s celebrate this win!

  17. As a longtime supporter of ETH, this is a huge relief! Thank you, SEC, for stepping back. Now we need constructive dialogue for future regulations. 🛡️🌟

  18. Feels like a victory! A positive move by the SEC. Lets focus on ensuring a sound regulatory framework for the future.

  19. Huge sigh of relief! The SEC ending its ETH probe is the sort of news we needed. Still work to do but a step in the right direction!

  20. Fantastic news for the ETH community! It’s a win for now; lets stay diligent for fair regulations!

  21. The whole thing feels so shady. Why can’t the SEC come out with a clear and definitive statement? 🤨

  22. Finally, some hope for the Ethereum space! SEC’s halt is a step forward. Lets ensure this momentum continues!

  23. Wow, this is a game-changer for Ethereum! Proud moment for all who believed in ETH. Time to push for more clarity and sound policies.

  24. Celebrating this small victory for Ethereum! Thank you, SEC, for stepping back. Onwards to better crypto regulations!

  25. Huge news! SEC stopping its investigation into Ether? Wow, didn’t see that coming. Lets keep pushing for better regulations!

  26. Closing the SEC investigation is fantastic news for ETH! A positive step but still miles to go in U.S. crypto regulation.

  27. Why cant we have consistent and transparent regulations? The SECs decisions seem more reactive than proactive.

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