The Securities and Exchange Commission (SEC) is intensifying its efforts to classify Ethereum, the world’s second-largest cryptocurrency, as a security.
This initiative has emerged through a series of subpoenas issued to U.S. companies, focusing particularly on their interactions with the Ethereum Foundation, a nonprofit organization responsible for overseeing the blockchain’s governance and development. The move has raised concerns within the crypto industry, particularly following hopes that the SEC’s recent approval of Bitcoin ETFs would pave the way for Ethereum ETFs by major financial players like BlackRock.
The investigation into the Ethereum Foundation, especially following Ethereum’s transition to a “proof-of-stake” governance model in September 2022, signals the SEC’s ongoing scrutiny of the crypto space. This shift away from the “proof-of-work” model, akin to Bitcoin’s, to a more energy-efficient system involving a network of validators, has provided the SEC with new grounds to explore Ethereum’s classification as a security.
The broader regulatory landscape for the crypto industry has been caught between the SEC’s assertive oversight ambitions and the commodities framework applied by the Commodities and Futures Trading Commission (CFTC) to assets like Bitcoin. The legal ambiguity surrounding cryptocurrencies’ status has fueled ongoing debates and court cases, with Ethereum’s classification as a security or a commodity remaining a particularly contentious issue.
Ethereum’s regulatory status has been a matter of speculation and discussion for years. In 2018, SEC officials suggested that Ethereum might not constitute a security, a stance that appeared to shift under Gensler’s leadership, especially after Ethereum’s adoption of the proof-of-stake model. Gensler’s comments in 2023 implied that proof-of-stake-based cryptocurrencies might fit the definition of investment contracts, hinting at a possible security classification, though without directly naming Ethereum.
SEC Chair Gary Gensler has made it clear that the agency’s decision on bitcoin ETFs is specific to bitcoin and should not be interpreted as a broader acceptance of other cryptocurrency products.
During a media briefing, Gensler said, “As I said two weeks ago, that which we did with regard to bitcoin exchange traded products is cabined to this one commodity non-security and shouldn’t be read to be anything other than that.”
Previously, the SEC has approved ether futures-like ETFs but not spot or mixed ones. In October, nine futures-based products were simultaneously green-lit.