Ethereum is the second largest decentralized blockchain network after Bitcoin. Since 2015, the native cryptocurrency Ether (ETH) is also being traded on various exchanges. However, this may not be so easy in the future. The U.S. Securities and Exchange Commission (SEC) wants to classify Ether as a security and has launched an aggressive campaign to do so.
Last Wednesday, a disturbing headline made the rounds. The Ethereum Foundation, based in Zug, Switzerland, is under investigation by a government agency. It's a confidential investigation with confidentiality obligations. Later, the financial magazine Fortune, citing inside sources, revealed that the SEC had launched a "vigorous legal campaign" against the Ethereum Foundation. The agency, led by former investment banker Gary Gensler, appears to be trying once again to classify Ether (ETH) as a security.
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SEC investigating since Ethereum "Merge"
The SEC investigation began after the Ethereum Merge, when Ethereum switched from Proof of Work (PoW) to Proof of Stake (PoS). In addition to the Ethereum Foundation, several U.S. crypto companies are being investigate as well. As part of the investigations, the SEC is demanding that the companies provide all documents and financial records related to their dealings with the Ethereum Foundation. This was revealed by an insider as published on Forbes.
Previously, Ethereum, like Bitcoin, used the Proof of Work consensus algorithm, where miners expended significant energy to confirm new transaction blocks. Proof of Stake (PoS), however, is an alternative model that requires validators to put up a security ("stake") in the form of the native cryptocurrency. The SEC now wants to use yield generated through staking the native currency as an argument for classify ETH as a security.
Political pressure is on Gensler
Since taking office in 2021, SEC Chairman Gary Gensler's questionable anti-crypto stance has often been criticized, even from within his own agency. However, Ether's status as a commodity had previously remained unquestioned. During his tenure at MIT, Gensler himself stated that Ethereum was decentralized enough not to be considered a security. According to insider sources, the latest campaign is due to political pressure from the Democratic Party. For example, Senator Elizabeth Warren publicly spoke out against the approval of spot Bitcoin ETFs.
The SEC's campaign against Ethereum could jeopardize the approval of an Ether ETF in May. Current ETH ETF contenders include BlackRock and Fidelity. If the decision is delayed again, the final deadline will be in August. A rejection of Ether ETFs due to the SEC's concerns is likely to result in further litigation. However, based on the clear language of the SEC vs. Grayscale court case, the applicants may have a good chance. Just this week, the SEC suffered another significant setback against crypto company DEBT Box.
