The Ethereum Foundation is under scrutiny by the SEC in the latest cryptocurrency crackdown: According to people familiar with the matter,
the US Securities and Exchange Commission has requested information from companies
about their dealings with the Ethereum Foundation to review aspects of Ethereum – the world’s second-largest cryptocurrency.
Topics
SEC Investigation
The recent SEC investigation may represent a significant escalation by Wall Street’s main regulatory body in its years-long
campaign against the cryptocurrency industry.
The agency’s chair, Gary Gensler, says many digital assets are unregistered securities and are subject to SEC regulations.
He has declined to say whether Ether is part of that group.
Although Gensler has avoided declaring Ethereum’s status,
he has indicated that a feature of the Ethereum software could bring Ether under its jurisdiction.
Such a determination would lead to a series of compliance and investor protection rules,
which many in the cryptocurrency industry say are unsuitable for digital assets.
Declaring Ethereum a Security
Declaring Ethereum as a security would also impact the broader cryptocurrency market
because developers widely use the Ethereum blockchain throughout the industry.
Meanwhile, major investment firms seek the SEC’s approval to list exchange-traded products based on Ether.
SEC Comment
The SEC declined to comment.
A representative for the Ethereum Foundation, a nonprofit organization based in Switzerland,
did not respond to requests for comment. CoinDesk reported the SEC review earlier.
A subpoena from the regulatory body sought more information about various aspects of the Ethereum Foundation,
according to one of the people who requested anonymity and discussed the information requests.
The full scope of the requests was not immediately clear.
Ethereum’s New Process
Some in the financial industry have said that the way the organization initially offered Ether in 2014 resembled a securities offering.
Concerns diminished during the Trump era when a top SEC official said transactions involving the token are not subject to federal securities rules.
Gensler then seemed to open the door for a reversal in September 2022 when he objected to the upgraded Ethereum blockchain, dubbed “Merge.”
At that time, Gensler said that Ethereum’s new process known as “proof of stake,”
where coin holders can earn financial rewards by allowing the network to use some of their assets,
which could fall under securities regulations. Ethereum had previously used Bitcoin’s “proof of work” method to run its blockchain.
Bitcoin
Bitcoin, the world’s largest digital asset, is the only cryptocurrency Gensler has definitively stated that it is not a security in his view.
However, the Commodity Futures Trading Commission, Washington’s other main market regulator,
has indicated that it does not consider Ethereum security and oversees trading in derivatives based on the token.
The Ethereum Foundation is under scrutiny by the SEC in the latest cryptocurrency crackdown.