The US Securities and Exchange Commission (SEC) has initiated a legal campaign for Ethereum classification. The regulator issued subpoenas to some US companies connected to the Ethereum Foundation in line with its investigation.
The SEC seeks to classify Ether (ETH) as a security system through its latest crackdown. Notably, this recent SEC move has lowered the crypto industry’s hope of getting approvals for an Ethereum ETF.
The SEC Investigates Companies Linked to Ethereum Foundation
According to a report from Fortune, the SEC reopened a new phase of its crackdown on the crypto industry. This time, the regulator focuses on Ethereum, the second-largest crypto asset by market cap. While citing people familiar with the matter, the report noted that some companies received subpoenas from the SEC recently.
According to the report, the SEC demands that the affected companies provide certain documents like financial records. Notably, these records included the firms’ relationship and interactions with the Ethereum Foundation, the non-profit organization behind the Ethereum blockchain and ecosystem-based in Switzerland.
Currently, the scope of the inquiry is still unknown. However, information from GitHub disclosed an investigation from a state authority. GitHub Commit, on February 26, 2024, stated:
We have received a voluntary inquiry from a state authority that included a requirement for confidentiality.
Before now, the official website of the Ethereum Foundation had a disclosure stating:
The Ethereum Foundation (Stiftung Ehereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed, Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations.
According to the changelog, the foot was removed from the GitHub Commit of February 26 and the website’s warrant canary. The Wayback Machine confirmed the canary and the text as of January.
Implications Of Classifying ETH As A Security
Notably, the SEC, under the leadership of Chair Gary Gensler, fights fiercely against cryptocurrency. It initiated lawsuits against some crypto exchanges, including Kraken, Binance, and Coinbase, over the sales of cryptocurrencies classified as securities.
In its list of crypto securities, the regulator cited some assets such as Solana (SOL), Cardano (ADA), XRP, and others. However, it never included Ethereum (ETH) before now. Moreover, the Commodities Futures Trading Commission (CFTC), another US regulator, has treated ETH as a commodity.
Also, the CFTC permitted ETH futures trading over the past few years. Additionally, several businesses and investors complete trades worth millions of dollars daily via ETH futures. Besides that, some prominent companies filed for an ETH ETF for approval, just like BTC ETFs in January.
These include BlackRock, VanEck, ARK Invest, Fidelity, Invesco, Grayscale, and others. Notably, many people expect the first set of SEC’s approval for ETH EFT by May 2024.
As such classifying ETH as a security now will deal a huge blow in the crypto space. It will disrupt so many transactions with ETH and dash the hope of approvals for Ethereum exchange-traded fund (ETF) applications.
