It turns out that the U.S. Securities and Exchange Commission (SEC) has been investigating Ethereum for a whole year. Yes, the higher-ups at the SEC have been closely examining Ethereum, trying to determine whether it should be classified as a security since 2023.
The focus on Ethereum gained more attention last week when Consensys, the company responsible for Ethereum software, decided they had had enough and filed a lawsuit against the SEC. They are quite upset about how the SEC has been handling things, especially considering that the SEC has been investigating since the early days of 2023.
Now, let’s delve into the details a bit.
The entire ordeal began to unravel when the SEC, under the watchful eye of Gurbir Grewal, the director of the Division of Enforcement, approved an investigation into the buying and selling of Ethereum in March 2023. They didn’t stop there; they went the official route by issuing subpoenas and gathering sworn testimonies.
During a Congressional testimony, SEC Chairman Gary Gensler played it coy and avoided answering whether Ethereum should be classified as a commodity or security. However, behind the scenes, the SEC had already ramped up their investigation and deemed Ethereum a security, although they weren’t making a big fuss about it.
In their legal battle, Consensys presents two main arguments. First, they strongly assert that Ethereum is not a security and claim that the SEC’s investigation is unwarranted. Second, they suggest that the SEC has targeted their MetaMask product, insinuating that it is some kind of broker-dealer arrangement. They have even received a Wells notice, which is essentially the SEC’s way of saying, “We might come after you.” However, none of this Wells notice drama specifically implicates Ethereum.
The legal disputes in 2023 were not solely centered around Ethereum. The SEC also went after Coinbase and Binance, labeling more than ten different assets as securities. However, Ethereum managed to avoid this scrutiny.
If we go back to 2018, we will find that the SEC had a different stance. At that time, Bill Hinman, the then-CFO, stated that Ethereum, just like Bitcoin, was not a security. However, now the SEC seems to believe that Ethereum’s recent updates, such as the Merge, may be pushing it into the realm of securities.
This legal entanglement also delves into Ethereum’s past activities. Consensys is facing intense scrutiny regarding its role in Ethereum’s proof-of-stake updates, as well as all the operational details, including acquisitions and sales. The SEC is quite convinced that even before Ethereum’s significant Merge in 2018, there were sales of securities going on.
To add to the drama, Consensys is not sitting idly by. They are fighting back to prevent the SEC from interfering in Ethereum’s affairs. As soon as the SEC waved that Wells notice in their face, indicating a potential crackdown on their MetaMask wallet services, Consensys launched their legal counterattack.
