Ethereum Regulatory Saga: Court Filings Expose SEC Chair Gensler’s Stand

Newly
disclosed
court
filings
have
shed
light
on
the
belief
of
the
US
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
of
crypto
advocates
to
be
an
outdated
legal
framework
for
regulating
crypto
assets.  

According
to
a
recent
Fox
Business


report,
the
details
emerged
following
Ethereum
software
company
ConsenSys’s
filing
of
an
unredacted
complaint
against
the
SEC.

Is
Ethereum
An
‘Unregistered
Security’?

According
to
the
court
filings,
SEC
Chair
Gensler
and
the
agency
seem
to
have
held
the
belief
for
at
least
a
year
that
Ethereum
was
operating
as
an
unregistered
security,
thereby
violating


federal
regulations. 

The
SEC’s
Division
of
Enforcement,
led
by
Gurbir
Grewal,
initiated
a
formal
order
of
investigation
into
Ethereum’s
status
as
a
security
on
March
28,
2023.
This
investigation,
known
as
“Ethereum
2.0,”
involved
the
enforcement
staff
probing
individuals
and
entities
buying
and
selling
ETH
tokens.

If
the
SEC
were
to
classify
Ethereum
as
a
security,
it
would
contradict


previous
guidance

provided
under
former
SEC
Chairman
Jay
Clayton.
In
June
of
the
preceding
year,
then-Director
of
Corporation
Finance
Bill
Hinman
stated
that
Ethereum
and
Bitcoin
(BTC)
were
not


considered

a
security.
This
announcement
led
to
a
10%
increase
in
ETH’s
price. 

Moreover,
the
Commodity
Futures
Trading
Commission
(CFTC)


classified

ETH,
the
native
token
of
the
Ethereum
network,
as
a
commodity
falling
under
its
jurisdiction. 

Proof-Of-Stake
Mechanism
At
Center
Of
Regulatory
Debate

According
to
the
report,
the
SEC’s
investigation
into
Ethereum
was
conducted
with
“unusual
secrecy,”
with
subpoena
recipients
required
to
sign
confidentiality
agreements. 

The
motive
behind
this
secrecy
remains
unclear,
but
the
implications
for
the
crypto
market
could
be
substantial
if
Ethereum,
with
its


market
cap

of
nearly
$400
billion,
is
deemed
a
security.

Even
before
his
testimony,
Chairman
Gensler’s

reluctance
to
provide
a
definitive
answer
on
Ethereum’s
regulatory
status
raised
concerns
within
the
crypto
industry. 

Some
speculated
that
Ethereum’s
transition
to
a
“proof-of-stake”
consensus
mechanism
in
September
2022,
where
validators
stake
their
Ethereum
holdings,
made
it
resemble
a
security
more
than
the
original
“proof-of-work”
mechanism
used
by
Bitcoin.
Gensler
alluded
to
this
notion,
suggesting
proof-of-stake
tokens
could
trigger
the
Howey
Test.

ConsenSys
Takes
On
SEC

As
Bitcoinist


reported,
software
company
ConsenSys
filed
a
lawsuit
against
the
SEC,
accusing
the
agency
of
an
“unlawful”
power
grab
in
attempting
to
classify
ETH
as
a
security. 

ConsenSys’
lawsuit
against
the
SEC
provides
further
insights
into
the
ongoing
investigation.
Over
the
past
year,
the
SEC
has
made
multiple
document
requests,
seeking
detailed
information
about
ConsenSys’
role
in
the
transition
to
proof-of-stake
and
its
acquisitions,
holdings,
and
sales
of
ETH. 

Fox
Business’s
report
further
suggests
that
the
SEC
may
also
consider
sales
of
ETH
before


The
Merge,
dating
back
to
2018,
as
potential
securities. 

The
investigation
has
intensified
in
recent
weeks,
with
ConsenSys
receiving
additional
document
subpoenas
and
a
Wells
notice
indicating
the
SEC’s
intent
to
take
enforcement
action
against
the
firm
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