US SEC Probes Ethereum Foundation, Seeks to Classify ETH as a Security

Hopes of a spot Ethereum ETF are further eroded as reports emerge that the SEC is investigating the Ethereum Foundation.

A Wednesday report from Fortune revealed that the United States Securities and Exchange Commission (SEC) has opened an inquiry into the Ethereum Foundation. The report shows that the Wall Street top regulator is looking to classify the network’s native coin, ETH, as a security.

A February 26th post on the Ethereum Foundation’s Github repository further confirms the investigation. According to the Swiss non-profit organization’s website, it is facing a voluntary inquiry from a state authority that includes a requirement for confidentiality.

Ethereum Foundation Under the Microscope

According to a person familiar with the situation, the SEC started investigating the Ethereum Foundation shortly after the Merge, an event that saw the network switch from Proof of Work (PoW) to Proof of Stake (PoS) in September 2022.

The people familiar with the subpoena noted that the SEC saw the switch as an avenue to classify Ethereum as a security. The persons, who pleaded that they conceal their identities, further revealed that the US top regulator had sent the Swiss-based firm several investigative subpoenas in recent weeks.

Notably, the Ethereum Foundation has gone against its commitment not to conceal any external investigation from state authorities. The footer on its website states thus:

“The Ethereum Foundation (Stiftung Ethereum) 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.”

Ether ETF Hopes Takes Hit

The ongoing investigation might have hampered the hopes of the SEC approving a spot Ethereum exchange-traded funds (ETF) by the widely expected May 23. If the question of ETH being a security persists, the SEC will postpone or deny Ether ETF products.

Analysts following the spot Ether ETF had already expressed pessimism about the SEC approving the product on its final deadline. They have cited a lack of communication with the US regulator and applicants, as seen before the spot Bitcoin approval in January.

Following the news, Ethereum plummeted over 8% to $3,175 before rebounding to $3,329. The token is down over 16% this week, with the majority of its correction coming from a broader market downtrend.