Ethereum wins a phased victory in the SEC investigation, and the regulatory wind in the U.S. may change

Author: Mia, ChainCatcher

Editor: Marco, ChainCatcher

After the approval of the Ethereum ETF, Ethereum has once again achieved a significant victory in the public eye.

On June 19, the Ethereum infrastructure development company Consensys announced on social media: "We are pleased to announce that Ethereum developers, technology providers, and industry participants have achieved a significant victory: the enforcement division of the U.S. Securities and Exchange Commission (SEC) has notified us that it is ending its investigation into Ethereum 2.0. This means the SEC will not bring charges claiming that the sale of ETH constitutes a securities transaction."

This 14-month investigation has finally come to a close, resulting in a satisfactory outcome.

Background of the SEC Investigation

According to insiders, this investigation began shortly after ETH transitioned to POS in September 2022.

When the ETH blockchain shifted to "proof of stake," Ethereum moved away from the energy-intensive model used by Bitcoin, adopting a model reliant on a network of trusted validators, which provided the SEC with a new excuse to attempt to define Ethereum as a security.

In response, a ConsenSys spokesperson stated: "Looking at Director Hinman's speech in 2018 makes it clear that he said Ethereum is not a security; he did not base this on PoW or PoS, and the consensus mechanism is irrelevant."

As early as 2018, then-SEC Director of the Division of Corporation Finance William Hinman made an important speech, clearly stating that Ethereum is not considered a security. Current SEC Chair Gary Gensler also testified before Congress that ETH is not a security before taking on the role of SEC Chair.

The sudden investigation undoubtedly sparked public controversy, putting the SEC in the spotlight.

Major crypto leaders began to publicly criticize the SEC.

Coinbase Chief Legal Officer paulgrewal.eth stated on social media that millions of Americans hold ETH, and since its launch in 2015, ETH has been crucial to the cryptocurrency space. ETH is a commodity, not a security, which has been the SEC's position for years, and the SEC has no sufficient reason to reject the ETH ETF application.

The premise for the approval of the ETH ETF is precisely the assumption that ETH is a commodity, and with the approval of the ETH ETF application in May this year, the commodity nature of ETH has been reaffirmed, which also means that the agency will end its investigation into Ethereum 2.0, making the investigation seem even more "absurd."

The SEC seems to have realized this point and ultimately abandoned the investigation.

SEC's Shift Towards Moderation

Since Gary Gensler took office, the SEC has been viewed as the "public enemy of the crypto world."

Whenever the SEC investigates certain projects or well-known individuals, the market often experiences volatility, sometimes leading to a downturn.

Since Gary Gensler assumed the role of SEC Chair in April 2021, he has overseen cases against several well-known crypto companies, including Binance, Coinbase, Kraken, and FTX. These cases involve issues such as market manipulation, unregistered securities offerings, and violations of anti-money laundering regulations. These actions have placed unprecedented regulatory pressure on crypto companies and sparked discussions within the industry regarding the scope and scale of regulation.

Over time, crypto users seem to have begun to develop immunity, and the SEC's attitude towards crypto appears to be softening amid the industry's persistent pressure.

In the face of controversy and skepticism, Gary Gensler and the SEC are also working to adjust their regulatory strategies and statements. They have begun to focus more on communication and cooperation with the crypto industry, attempting to find a regulatory approach that can both protect investor rights and promote market development.

While "regulating" the crypto industry, the SEC has been committed to the integration of crypto finance and traditional finance.

In January of this year, a Bitcoin spot ETF was launched; in May, the SEC also approved the 19 b-4 filing for the Ethereum spot ETF. These two events have facilitated the integration of the crypto industry with mainstream finance.

Regarding the SEC's recent moderate actions in the crypto space, Hong Kong blockchain lawyer Wu Wenqian believes that "the SEC's regulatory attitude seems to show signs of a shift."

Lawyer Wu stated, "Last month, the SEC officially approved the 19 b-4 filing for the Ethereum spot ETF. Although there is still some legal controversy over whether ETH is a security, this move undoubtedly brings a bit of warmth to the cryptocurrency industry. The decision to withdraw the investigation, while it may not have direct guiding significance for regulatory transparency and consistency, is undoubtedly seen as an important signal that the regulatory direction may change.

Considering that the U.S. elections are approaching this year, there is indeed a possibility of significant policy shifts. Against this backdrop, the SEC's adjustment of its regulatory attitude towards cryptocurrencies may indicate a future regulatory environment that is more open and inclusive. For the cryptocurrency industry, this is undoubtedly a positive signal worth looking forward to."

On June 20, Forbes business reporter Eleanor Terrett revealed that Consensys founder Joseph Lubin stated that the company still plans to continue pursuing litigation, "The SEC's decision to end its 14-month investigation into Ethereum is a welcome development—it's necessary, but not enough. There must be better market regulation than raids. We hope that some U.S. regulatory agencies will begin to ease their confrontational stance towards cryptocurrencies, and that the national investor protection strategy will evolve from the current guerrilla tactics. Until then, we will continue our litigation against the SEC in Texas, as we are committed to advocating for greater legal clarity for everyone."

In the face of the wild growth of the primitive crypto society, corresponding regulation and adjustments are undoubtedly a necessary path.

As Lubin said, only by clearly defining the scope and scale of regulation through legal means can we truly promote the healthy development of the crypto industry while protecting the legitimate rights and interests of investors. Regulatory agencies and the crypto industry should find better market regulation methods rather than relying on surprise inspections.