Ethereum Breathes Easy As SEC Halts Investigation, Consensys Confirms

In a surprising turn of events for the crypto space—an industry that is constantly on regulatory pins and needles, one might add—the U.S. Securities and Exchange Commission (SEC) has decided to drop its investigation into Ethereum—the world’s second-largest cryptocurrency by market cap—as reported by ConsenSys, a central figure in the Ethereum ecosystem. This news comes as a breath of fresh air for the Ethereum community, which has been under the regulatory microscope of the government agency for some time.

Regulatory Overhang Lifted

The SEC’s Enforcement Division has officially notified Consensys, a leading Ethereum developer, that it is closing its investigation into Ethereum 2.0. This means that the SEC will not be bringing charges alleging that sales of Ether (ETH) are securities transactions. This decision is being hailed as a “major win for Ethereum developers, technology providers, and industry participants.”

The SEC’s decision may influence the regulatory treatment of other cryptocurrencies and blockchain projects. Recognizing Ethereum’s decentralized structure could lead to a more nuanced regulatory approach for evaluating digital assets, potentially encouraging innovation and growth without fearing harsh regulatory crackdowns.

The Backstory

The decision came after Consensys sent a letter to the SEC on June 7, asking if it would end its investigation into Ether. This was in response to the regulator approving spot ETH exchange-traded funds (ETFs) in May, which Consensys stated was “premised on ETH being a commodity.”

You’ll recall that the SEC’s investigation into Ethereum focused on whether the cryptocurrency should be classified as a security, which would impose stringent regulatory requirements. The probe was related to the initial coin offering (ICO) that funded Ethereum’s development in 2014. ICOs, commonly used by blockchain projects to raise funds, have been compared to securities offerings, necessitating SEC compliance.

Laura Brookover, senior counsel at Consensys, shared the SEC’s response letter stating that the agency does not “intend to recommend an enforcement action.” However, the SEC has not yet responded to requests for comment.

This development follows a series of subpoenas issued by the SEC in March to multiple companies related to attempts to label ETH as a security. In response, Consensys filed a lawsuit against the SEC in April, shortly after receiving a Wells notice from the agency warning that its MetaMask crypto wallet may have violated securities laws.

The lawsuit claimed that the SEC and its chair, Gary Gensler, believed ETH was a security since at least early 2023. Consensys also claimed that Gurbir Grewal, head of the SEC Division of Enforcement, approved a formal order of investigation into Ether’s status as a security on March 28, 2023.

Despite the SEC dropping its investigation into Ethereum, the lawsuit is still ongoing. However, for now, the Ethereum community can breathe a sigh of relief as the cloud of regulatory uncertainty begins to lift.

Market Reaction

In the wake of this news, Ether’s (ETH) price jumped around 1.4% to $3,541, breaking its critical and closely watched $3,500 level. This serves as an acid test to the impact of regulatory decisions on the volatile crypto market.