After obtaining approval for an Ethereum ETF, Ethereum has once again achieved a significant victory in the public eye.
On June 19th, Consensys, the Ethereum infrastructure development company, announced on social media that Ethereum developers, technical providers, and industry participants had achieved a major victory: the U.S. Securities and Exchange Commission’s (SEC) enforcement division notified them that it is ending its investigation into Ethereum 2.0. This means that the SEC will not bring charges claiming that the sale of ETH is a securities transaction.
This 14-month investigation finally came to an end, with a satisfactory outcome.
The SEC Investigation
According to insiders, the investigation began shortly after the transition of Ethereum’s blockchain to proof-of-stake (POS) in September 2022.
When the Ethereum blockchain shifted to a proof-of-stake model, departing from the energy-intensive model used by Bitcoin and relying on a network of trusted validators, it provided the SEC with a new excuse to try to classify Ethereum as a security.
In response, a spokesperson for Consensys stated, “Take a look at Director Hinman’s speech in 2018, where he stated that Ethereum is not a security. He did not base it on PoW or PoS, and the consensus mechanism is irrelevant.”
As early as 2018, William Hinman, who was the director of the SEC’s Division of Corporation Finance at the time, made an important speech explicitly stating that Ethereum is not considered a security. Even before becoming SEC chairman, Gary Gensler testified in Congress that ETH is not a security.
The sudden investigation undoubtedly sparked public controversy and put the SEC in the spotlight.
Key cryptocurrency leaders began openly criticizing the SEC.
Coinbase’s Chief Legal Officer, paulgrewal.eth, posted on social media, stating that millions of Americans hold ETH and that ETH has been crucial to the cryptocurrency industry since its launch in 2015. ETH is a commodity, not a security, and this has been the stance of the SEC for many years. The SEC has no sufficient reason to reject the ETH ETF application.
The approval of the ETH ETF is based on the assumption that ETH is a commodity, and with the approval of the ETH ETF application in May, the commodity nature of ETH has once again been proven. This also means that the SEC will end its investigation into Ethereum 2.0, making the investigation seem even more nonsensical.
The SEC seems to have realized this and ultimately abandoned the investigation.
A Gentle Approach by the SEC
Since Gary Gensler took office, the SEC has been seen as the “enemy of the crypto world.”
Whenever the SEC investigates or takes action against certain projects or prominent figures, the market tends to experience volatility and even triggers a downturn in the market.
Since becoming SEC chairman in April 2021, Gary Gensler has led cases against several well-known cryptocurrency companies, including Binance, Coinbase, Kraken, and FTX. These cases involve issues such as market manipulation, unregistered securities offerings, and violations of anti-money laundering regulations. These actions have put unprecedented regulatory pressure on cryptocurrency companies and sparked discussions within the industry about the scope and extent of regulation.
Over time, cryptocurrency users seem to have become immune, and the SEC’s attitude towards cryptocurrencies appears to be becoming more moderate amid the ongoing negotiations.
Faced with controversy and criticism, Gary Gensler and the SEC are making efforts to adjust their regulatory strategies and statements. They are beginning to pay more attention to communication and collaboration with the cryptocurrency industry, trying to find a regulatory approach that protects investor rights while promoting market development.
While “cleaning up” the cryptocurrency industry, the SEC has also been dedicated to the integration of cryptocurrency finance and traditional finance.
In January of this year, a Bitcoin spot ETF was launched, and in May, the SEC approved the 19 b-4 filing for an Ethereum spot ETF. These two events have facilitated the integration of the cryptocurrency industry and mainstream finance.
Regarding the recent moderate measures taken by the SEC in the cryptocurrency field, Hong Kong blockchain lawyer Wu Wenqian believes that “the SEC’s regulatory attitude seems to show signs of a change in direction.”
Wu stated, “Last month, the SEC officially approved the 19 b-4 filing for an Ethereum spot ETF. Although there is still some debate about whether ETH is a security from a legal standpoint, this move undoubtedly brought some warmth to the cryptocurrency industry. While the decision to end the investigation may not have direct implications for the transparency and consistency of regulation, it is seen as an important signal that the regulatory direction may be changing.
Considering that the U.S. presidential election is approaching this year, there is a possibility of a major shift in policy direction. In this context, the SEC’s adjustment of its regulatory stance towards cryptocurrencies may indicate a future regulatory environment that is more open and inclusive. For the cryptocurrency industry, this is undoubtedly a positive signal worth looking forward to.”
On June 20th, Forbes business journalist Eleanor Terrett revealed that Joseph Lubin, the founder of Consensys, stated that the company plans to continue with the lawsuit. “The U.S. Securities and Exchange Commission’s decision to end the 14-month investigation into Ethereum is a welcome development—it is necessary, but not enough. There must be better market regulatory methods than raids. We hope that some U.S. regulatory agencies will begin to reduce their adversarial sentiment towards cryptocurrencies, and national investor protection strategies will evolve from the current guerrilla tactics. Before that, we will continue our lawsuit against the SEC in Texas because we are committed to fighting for more legal clarity for everyone.”
In the face of the wild growth of the primitive crypto society, corresponding regulation and adjustments are undoubtedly necessary.
As Lubin said, only by legally defining the scope and scale of regulation can the healthy development of the cryptocurrency industry be truly promoted while protecting the legitimate rights and interests of investors. Regulatory agencies and the cryptocurrency industry should find better market regulatory methods rather than conducting raids.
