Author: Mia
Following the approval of the Ethereum ETF, Ethereum has once again won a significant victory in the public eye.
On June 19th, ConsenSys, the Ethereum infrastructure development company, announced on social media: “We are pleased to announce a major victory for Ethereum developers, technology providers, and industry participants. The enforcement division of the U.S. Securities and Exchange Commission (SEC) has notified us 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 has finally come to an end, achieving a satisfactory progress.
SEC Investigation Timeline
According to insiders, the investigation began shortly after the transition of the Ethereum blockchain to Proof of Stake (POS) in September 2022.
When the ETH blockchain shifted to a Proof of Stake model, moving away from the energy-intensive model used by Bitcoin and adopting a model dependent on a network of trusted validators, it provided the SEC with a new pretext 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 was not a security. He did not base it on PoW or PoS, as the consensus mechanism was irrelevant.”
As early as 2018, William Hinman, the former director of the SEC’s Division of Corporation Finance, made an important speech clearly stating that Ethereum should not be considered a security. Even before his tenure as SEC Chairman, Gary Gensler testified before Congress that ETH is not a security.
The sudden investigation undoubtedly sparked public controversy, putting the SEC in the spotlight.
Crypto 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 since its launch in 2015, ETH has been crucial to the cryptocurrency industry. ETH is a commodity, not a security, and this has been the position taken by the SEC for years. The SEC has no sufficient reason to reject the ETH ETF application.
The premise for the approval of the ETH ETF is the assumption that ETH is a commodity. With the approval of the ETH ETF application in May, the commodity nature of ETH has once again been proven, and it also means that the SEC will end the investigation into Ethereum 2.0, making this investigation seem more “absurd.”
The SEC seems to have realized this and ultimately abandoned the investigation.
A Softer Approach by the SEC
Since Gary Gensler took office, the SEC has been seen as the “archenemy” of the crypto world.
Whenever the SEC investigates or takes action against certain projects or well-known individuals, the market tends to experience volatility and even a downturn.
Since becoming SEC Chairman in April 2021, Gary Gensler has led cases against several well-known crypto 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 crypto companies and sparked discussions within the industry about the scope and scale of regulation.
Over time, crypto users seem to have become immune, and the SEC’s attitude towards crypto appears to be softening amidst the industry’s pushback.
Faced with controversy and questioning, Gary Gensler and the SEC have been adjusting their regulatory strategy and rhetoric. They are now paying more attention to communication and cooperation with the crypto industry, trying to find a regulatory approach that can protect investor rights and promote market development.
While “cleaning up” the crypto industry, the SEC has also been working towards the integration of crypto finance and traditional finance.
In January of this year, a Bitcoin spot ETF was launched, and in May, the SEC approved the 19b-4 filing for an Ethereum spot ETF, promoting the integration of the crypto industry and mainstream finance.
Regarding the recent moderate measures taken by the SEC in the crypto 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 19b-4 filing for the Ethereum spot ETF. Although there is still some debate over whether ETH is a security legally, this move undoubtedly brought a glimmer of warmth to the cryptocurrency industry. While the decision to end the investigation may not have direct guidance on the transparency and consistency of regulation, it is seen as an important signal that the regulatory direction may change.”
Considering the upcoming U.S. elections this year, there is a possibility of a major shift in policy direction. In this context, the SEC’s adjustment to its regulation of cryptocurrencies may indicate a future regulatory environment that is more open and accommodating. 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 still plans to continue with the lawsuit. “The SEC’s decision to end the 14-month investigation into Ethereum is a welcome development, but it is necessary and not enough. There must be better market regulatory methods than raids. We hope that some U.S. regulatory agencies will begin to soften their stance on cryptocurrencies, and national investor protection strategies will evolve from the current guerrilla tactics. Before that happens, 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 crypto industry be truly promoted, while protecting the legitimate rights and interests of investors. Regulatory agencies and the crypto industry should find better market regulatory methods, rather than conducting raids.
