- The native token of Ethereum risks getting classified as a security by the US Securities and Exchange Commission (SEC).
- Probe into Ether (ETH) has been ongoing since last year following its blockchain’s Merge event.
SEC Probes Ethereum Token
The US Securities and Exchange Commission has been conducting a probe into Ethereum to determine whether or not its native token, Ether, should be classified as security. Citing unnamed sources, Fortune reported that the regulator asked several US-based companies via a subpoena to furnish documents relating to their dealings with the Ethereum Foundation (EF). The investigation apparently began in the immediate aftermath of the network’s Merge event in 2022.
The EF presents itself as a non-profit organization (NPO) responsible for the launch of the Ethereum blockchain back in 2015. It currently supports the network and several projects linked to it.
Following the shift of Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) protocol, SEC Chair Gary Gensler likened the mechanism to how security investments operated. For him, it mirrored investment contracts where people pour their money into a common enterprise with the expectation of profits from the efforts of others such as the people running the business, the model of the organization, or both.
Of course, such a move does not only hold serious implications for the people behind the world’s second-largest blockchain, particularly Vitalik Buterin and Joseph Lubin, but also for the anticipated Ethereum exchange-traded funds and the wider cryptocurrency industry.
Although Gensler has yet to address the matter, his relentless lawsuits against crypto exchanges like Binance, Kraken, and Coinbase due to their alleged sale of securities, including Cardano’s ADA and Solana’s SOL, could spell similar trouble for Ether.
Contrary to the CFTC’s Classification of ETH
The counterpart of SEC, the Commodities Futures Trading Commission, however, has referred to ETH as a commodity in a case against former FTX CEO Sam Bankman-Fried. Additionally, the agency has been allowing the trade of ETH futures contracts under its watch.
It should be noted that the SEC’s approval of ETH futures ETFs last year supported CFTC’s stance, too. The regulator can be recalled referring to their underlying asset, Ether, as “non-security,” hence, it falls outside of its scope.
The SEC suddenly making a U-turn on the classification of Ether could negatively affect investors and companies already engaging in ETH futures. Add to that the entities facilitating the exchange of these financial instruments in the US like the CME Group and Cboe Global Markets.
Are Hopes for ETH ETFs Dashed?
If the SEC is indeed planning to overturn its own decision on Ether or it’s still being deliberated upon, it could have a reason to delay or even deny all pending spot ETH ETF applications. The eerie silence of the US watchdog and its lack of engagement with the applicants is also seen as a red flag by the crypto community that could turn the odds against their favor.
For now, we can only wait until May 23 if the SEC will eventually approve or reject all spot ETH filings.