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US SEC Seeks To Classify Ethereum (ETH) As A Security

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Key Takeaways

  • The SEC is investigating the Ethereum Foundation, raising the possibility of Ethereum (ETH) being classified as a security.
  • More US companies are receiving subpoenas from the SEC, requesting documents and financial records related to their dealings with the Ethereum Foundation.
  • SEC Chair Gary Gensler has refused to directly address whether ETH qualifies as a security despite previous statements indicating otherwise.

The SEC is looking into whether Ethereum’s native token, ETH, meets the definition of a security under US law.

According to Fortune’s report, the SEC has launched investigations into Ethereum following the Merge in 2022. The investigation reportedly involved subpoenas issued to several US companies requesting documents connected to their interactions with the Ethereum Foundation.

Ethereum Foundation

Founded in 2015, the Ethereum Foundation is a non-profit organization that spearheaded the launch of the Ethereum blockchain. It currently maintains the network and supports various associated projects.

Ethereum Merge

After Ethereum transitioned from a proof-of-work (PoW) to a proof-of-stake (PoS) in 2022, SEC Chair Gary Gensler drew parallels between the new mechanism and the operation of security investments. He compared it to investment contracts, where individuals invest in a collective endeavor with the anticipation of profits generated by the efforts of others, such as those managing the business or the organizational structure itself.

CFTC: Ethereum Is A Commodity

In contrast to the SEC, the Commodities Futures Trading Commission (CFTC) has taken a different view on Ethereum. The CFTC has classified ETH as a commodity in a legal case involving former FTX CEO Sam Bankman-Fried (SBF). This classification is further supported by their allowance of ETH futures contracts to be traded on platforms under their oversight.

Suppose the SEC intends to classify Ethereum as a security, this would create confusion for the markets, investors, and companies already involved in ETH futures contracts, and would extend to US-based facilitators of these financial instruments, including CME Group and Cboe Global Markets.

Ethereum Spot ETFs

The SEC’s ongoing review of Ether’s classification could factor in the delay or denial of pending spot ETH ETF applications. The lack of public updates from the securities regulator may be prompting some within the crypto community to view the approval process less optimistically. A final decision on all spot ETH ETF applications is expected by May 23rd.

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