After the approval of the Ethereum ETF, the SEC’s investigation into Ethereum 2.0 has finally come to an end, marking another milestone victory for Ethereum 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 alleging that the sale of ETH is a securities transaction.”
This 14-month investigation has finally come to a satisfactory conclusion.
According to insiders, the investigation began shortly after the transition of ETH to Proof-of-Stake in September 2022. When the ETH blockchain shifted to a “Proof-of-Stake” model, abandoning the energy-intensive model used by Bitcoin and adopting a model based on a network of trusted validators, it provided the SEC with a new justification 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, and the consensus mechanism is irrelevant.”
Back in 2018, William Hinman, the then-director of the SEC’s Division of Corporation Finance, gave an important speech explicitly stating that Ethereum should not be considered a security. Gary Gensler, the current SEC chairman, also testified before Congress that ETH is not a security.
The sudden investigation undoubtedly sparked public controversy and pushed the SEC into the spotlight. Cryptocurrency leaders began openly criticizing the SEC.
Paul Grewal.eth, the Chief Legal Officer of Coinbase, posted on social media, stating that millions of Americans hold ETH and that ETH has been crucial to the cryptocurrency field since its launch in 2015. ETH is a commodity, not a security, which has been the SEC’s stance for years. The SEC has insufficient reasons to reject the ETH ETF application.
The premise for the approval of the ETH ETF is that ETH is considered a commodity. With the approval of the ETH ETF application in May this year, the commodity nature of ETH has once again been proven, and it also means that the SEC will end its investigation into Ethereum 2.0, making this investigation even more “absurd.”
The SEC seems to have realized this and ultimately abandoned the investigation.
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 fluctuate and even lead to a downturn in the market.
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 has gradually become more moderate.
Facing controversy and questioning, Gary Gensler and the SEC are making efforts to adjust their regulatory strategies and statements. They have started to focus more on 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 been working on the integration of crypto finance and traditional finance.
In January this year, a Bitcoin spot ETF was listed. In May, the SEC also approved the 19b-4 filing for an Ethereum spot ETF, promoting the integration between 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 be showing signs of a shift.”
Wu stated, “Last month, the SEC officially approved the 19b-4 filing for the Ethereum spot ETF. Although there is still some controversy over whether ETH is a security from a legal perspective, this move undoubtedly brought a hint of warmth to the cryptocurrency industry. This decision to end the investigation, although it may not have direct guidance on the transparency and consistency of regulation, is seen as an important signal of a possible change in regulatory direction.”
Considering the upcoming US elections this year, there is a possibility of a major policy shift. Against this backdrop, the SEC’s adjustment of its regulatory attitude towards crypto may indicate a more open and inclusive regulatory environment in the future. 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 the legal battle. “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 US regulatory agencies will begin to weaken their confrontational sentiment towards cryptocurrencies, and national investor protection strategies will evolve from the current guerrilla tactics. Before that, we will continue our litigation 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, appropriate 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 ways of market regulation instead of conducting raids.
