July 15, 2024

SEC Drops Investigation Into Whether Ether is a Security

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The United States Securities and Exchange Commission (SEC) has decided to close its investigation into whether Ether (ETH) is a security, marking a significant development for the cryptocurrency industry. The news was announced by Ethereum developer Consensys in a post on X, formerly known as Twitter.

“The Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0,” Consensys stated. “This means that the SEC will not bring charges alleging that sales of ETH are securities transactions,” the firm added, celebrating the decision as a “major win for Ethereum developers, technology providers, and industry participants.”

Consensys revealed that the SEC’s decision followed a letter sent by the firm on June 7, urging the agency to end its probe into Ether. The letter argued that the approval of spot Ether exchange-traded funds (ETFs) by the SEC in May was based on the premise that ETH is a commodity, not a security. Consensys senior counsel Laura Brookover shared the SEC’s response, which stated that the agency does not “intend to recommend an enforcement action.”

The SEC’s probe into Ether has been a topic of significant interest and controversy. In March, Fortune reported that the SEC had issued subpoenas to multiple companies in an attempt to classify ETH as a security. Consensys subsequently sued the SEC in April after receiving a Wells notice, which warned that its MetaMask crypto wallet might have violated securities laws. The lawsuit claimed that SEC Chair Gary Gensler and the agency’s Division of Enforcement Director Gurbir Grewal had believed ETH to be a security since early 2023, with a formal investigation order issued on March 28, 2023.

Despite the positive regulatory news, Ether’s market performance has been lackluster. Since June 7, ETH has struggled, losing its $3,800 support level and remaining below $3,600 as of June 19, with no weekly change. Analysts attribute this bearish momentum to a combination of regulatory uncertainty and a lack of institutional demand for cryptocurrencies.

The broader cryptocurrency market has also faced challenges. Bitcoin (BTC), the leading cryptocurrency, encountered resistance near $72,000 on June 7. Investor concerns about the U.S. fiscal health, high interest rates, and deteriorating economic indicators such as rising wages and an increasing jobless rate have further impacted the market. In May, U.S. average hourly earnings rose by 0.4% month-on-month, while the unemployment rate increased to 4.0% from 3.9% in April.

Despite potential medium to long-term benefits for cryptocurrencies from worsening macroeconomic conditions, investors have historically retreated from risk assets when recession risks loom. The U.S. two-year Treasury yield fell from 4.94% on May 30 to 4.71%, reflecting a flight to fixed-income instruments.

While regulatory clarity for Ether is a positive step, the Ethereum network continues to grapple with high transaction fees, which have exceeded $4 over the past week. However, SEC Chair Gary Gensler confirmed that the launch of U.S. spot Ether ETFs is expected within three months, providing a hopeful outlook for the cryptocurrency.

The SEC’s decision to drop its investigation into Ether as a security is a landmark moment for the cryptocurrency community, potentially setting a precedent for how digital assets are regulated in the future.

Digital Assets Desk

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