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19 June 2024

The SEC Ends Its Probe into Ethereum, but Consensys Warns the Battle Isn’t Over Yet

The United States Securities and Exchange Commission (SEC) has decided to drop its investigation into whether Ether (ETH) qualifies as a security. According to a June 19 post by Ethereum developer Consensys, the SEC’s Enforcement Division has closed its investigation into Ethereum 2.0.

“This means that the SEC will not bring charges alleging that sales of ETH are securities transactions,” Consensys announced, celebrating this decision as a “major win for Ethereum developers, technology providers, and industry participants.”

Why the SEC’s Decision Matters

The SEC’s decision came after Consensys sent a letter to the agency on June 7, requesting an end to the investigation into Ether. This request followed the SEC’s approval of spot Ether exchange-traded funds (ETFs) in May, which Consensys argued implied that ETH is considered a commodity, not a security.

In a response letter shared by Consensys senior counsel Laura Brookover, the SEC indicated it does not “intend to recommend an enforcement action” against Ether. The SEC has not provided an immediate comment on this development.

Background and Ongoing Legal Battles

The SEC’s investigation into Ethereum had intensified earlier this year. In March, Fortune reported that the SEC had issued subpoenas to several companies as part of its efforts to classify ETH as a security.

In April, Consensys sued the SEC after receiving a Wells notice from the agency, suggesting that its MetaMask crypto wallet might have violated securities laws. The lawsuit accused SEC Chair Gary Gensler of considering ETH a security since early 2023. It also claimed that Gurbir Grewal, Director of the SEC’s Division of Enforcement, approved a formal investigation into Ether’s status as a security on March 28, 2023.

Despite the recent decision to drop the investigation, Consensys noted that the lawsuit against the SEC is still ongoing.

Implications for the Crypto Industry

The SEC’s decision to close its investigation into Ethereum is seen as a significant victory for the broader cryptocurrency community. It potentially sets a precedent for how other cryptocurrencies might be classified in the future, providing some clarity in an industry often fraught with regulatory uncertainty.

As the legal battle continues, industry participants will be closely watching for any further developments that could impact the status and regulation of cryptocurrencies.