Newly disclosed court documents shed light on the belief of the United States Securities and Exchange Commission (SEC) and its Chairman, Gary Gensler, that Ethereum (ETH) is an “unregistered security” under the Howey Test , which is considered by the vast majority. Some crypto proponents consider it to be an outdated legal framework for regulating crypto assets.
According to a recent Fox Business report reportThe details emerged following Ethereum software company ConsenSys’ filing of an unredacted complaint against the SEC.
Is Ethereum an “unregistered security”?
According to court filings, SEC Chairman Gensler and the agency appear to have believed for at least a year that Ethereum was operating as an unregistered security, thereby violating federal regulations.
The SEC’s Enforcement Division, led by Gurbir Grewal, initiated a formal order investigating the status of Ethereum as a security on March 28, 2023. This investigation, known as ” Ethereum 2.0,” involved law enforcement personnel investigating individuals and entities buying and selling securities. ETH tokens.
If the SEC were to classify Ethereum as a security, it would contradict previous tips provided under former SEC Chairman Jay Clayton. In June of the previous year, Bill Hinman, then the company’s chief financial officer, said that Ethereum and Bitcoin (BTC) were not considered security. This announcement led to a 10% increase in the price of ETH.
Additionally, the Commodity Futures Trading Commission (CFTC) classified ETH, the native token of the Ethereum network, as a commodity under its jurisdiction.
The proof of participation mechanism at the center of the regulatory debate
According to the report, the SEC’s investigation into Ethereum was conducted in “unusual secrecy,” with recipients of the subpoenas required to sign confidentiality agreements.
The motive for this secrecy remains unclear, but the implications for the crypto market could be substantial if Ethereum, with its market capitalization of almost 400 billion dollars, is considered a security.
Even before his testimony, Chairman Gensler reluctance providing a definitive answer on the regulatory status of Ethereum has raised concerns within the crypto industry.
Some have speculated that Ethereum’s transition to a “proof of stake” consensus mechanism in September 2022, in which validators stake their Ethereum holdings, has made it more like a security than the Original “proof of work” mechanism used by Bitcoin. Gensler alluded to this notion, suggesting that proof-of-stake tokens could trigger the Howey test.
ConsenSys takes on the SEC
As a Bitcoinist reportedsoftware company ConsenSys has filed a lawsuit against the SEC, accusing the agency of an “illegal” power grab by attempting to classify ETH as a security.
ConsenSys’ lawsuit against the SEC provides additional information about the ongoing investigation. Over the past year, the SEC has made several document requests, seeking detailed information about ConsenSys’ role in the transition to proof-of-stake and its acquisitions, holdings, and sales of ETH.
The Fox Business report further suggests that the SEC may also consider selling ETH before Fusiondating back to 2018, as potential titles.
The investigation has intensified in recent weeks, with ConsenSys receiving additional subpoenas and a notice from Wells indicating the SEC’s intent to take enforcement action against the company for allegedly acting as an unregistered broker-dealer offering unregistered securities, including ETH, through its MetaMask Wallet.
ETH is trading at $3,170, down more than 4% in the last 24 hours alone, after several failed attempts to consolidate above the $3,200 price level.
Featured image from Shutterstock, chart from TradingView.com
