SEC Ends Ether Security Investigation: A Regulatory Shift or Brief Respite?
Summary:
The U.S. Securities and Exchange Commission (SEC) has unexpectedly ended its investigation into whether Ether (ETH) is a security. While Consensys, a blockchain technology company, suggests this shift indicates ETH is now considered a commodity, Professor Carol Goforth warns that this doesn't ensure ETH's status as a non-security. She notes that approval of an ETH exchange-traded fund (ETF) doesn’t directly correlate to ETH's classification. Additionally, legal battles over staking, a core component of the Ethereum ecosystem, continue to unfold, implying the fight for a clearer U.S. crypto regulatory framework is far from over.
On June 19, 2024, the crypto world was taken aback when the U.S Securities and Exchange Commission (SEC) unexpectedly concluded its investigation into whether Ether (ETH) is a security. According to Laura Brookover, a lawyer from Consensys, the SEC has no more reservations about ETH being a security. However, she also suggested that the SEC hadn't willingly decided to conclude the investigation. The decision was more of a response to the pressure to lift subpoenas on Consensys, following their recent changes to ETH rule concerning exchange-traded funds (ETFs), which were based on ETH being a commodity.
A letter from Consensys to the SEC indicated that the approval of spot ETH ETFs demonstrated the body's evolved stance, categorizing ETH as a commodity and not a security. The SEC has not yet publicly acknowledged this interpretation. Carol Goforth, a business associations and securities regulation specialist at the University of Arkansas School of Law, argues that the approval of a spot ETH ETF doesn't necessarily label ETH as a commodity. She pointed out that an ETF's approval doesn't necessarily correlate to the categorization of the underlying asset, adding already existing ETFs that hold commodities as the underlying asset.
As per Goforth's view, the decision to stop the investigation of Ethereum by the SEC is a likely sign that they felt they wouldn't be successful in convincing a court that ETH is a security. She suspects the SEC found it challenging to prove ETH's classification under the Howey investment contract test, given its vast ownership, trading, and dependence on market forces for profitability. In a 2018 speech, former SEC director William Hinman affirmed that Ethereum was not a security, hinting towards the role of decentralization in making that determination. The crypto industry has often expressed frustration that the SEC hasn't provided consistent guidance on the application of the Howey test to Ethereum or similar cryptocurrencies.
Despite the SEC's decision to pull back on its investigation, Goforth warns that it's a temporary hiatus, and not a final ruling. In her opinion, the triumph may be premature as uncertainties about the proper categorization of most crypto assets still loom. However, this significant breakthrough doesn't negate the struggles faced by various blockchain developers, technology providers, and other industry players under the SEC's aggressive measures.
The SEC's scrutiny of Ethereum's key component, staking, is ongoing. Kraken has already resolved its issues with the SEC for $30 million and ended its staking services after assertions that its offering constituted a security. Brian Armstrong, the CEO of Coinbase, declared that he is prepared to take the SEC to court over staking if required. Goforth asserts that the topic of staking is more complex, with the SEC contending that staking involves an investment contract, regardless of whether the underlying crypto asset is a security.
Although the battle for clear regulatory rules in the U.S crypto industry remains uphill, these recent developments could provide Ethereum supporters some solace from the uncertainties concerning Ether's classification, and thus spark a ray of hope in the otherwise shaky regulatory scene.
Published At
6/20/2024 5:03:00 PM
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