Back in 2018, the SEC’s Director of Corporate Finance, William Hinman, disclosed the commission wouldn’t be treating Ethereum as a security, his speech coming a day after SEC Chair Jay Clayton denounced initial coin offerings (ICOs) for the harm they caused investors.
The watchdog of the financial markets began scrutinizing Ethereum on March 28, 2023, taking a closer look at buying and selling activity following the transition to the Proof of Stake consensus algorithm.
In April 2024, Consensys received a Wells notice indicating an infraction had been discovered. The company brought legal action against the SEC in April 2024 to guard the Ethereum ecosystem, chasing a court order to halt its investigation.
The good news is that the SEC decided to abandon its investigation into Ethereum 2.0, firmly stating it won’t bring any charges because sales of ETH are securities transactions, which is a big win for developers, technology providers, and industry participants.
Nevertheless, Consensys draws attention to the fact that the fight isn’t over yet. To be more precise, the blockchain software company’s lawsuit against the SEC will continue, striving for transparency regarding the legal status of the cryptocurrency.
Consensys admitted that the recent approval of spot Ethereum ETFs will strengthen the asset’s status as a commodity in the eyes of the law.
Ethereum Experienced a Slight Increase Following the SEC’s Announcement
In an unexpected turn of events that captured the attention of the entire cryptocurrency community, Ethereum, the second-largest cryptocurrency by market capitalization, witnessed a substantial increase in price.
At the time of writing, 1 ETH is worth $ 3,756.53. Based on users’ Ethereum price prediction 2025, the cryptocurrency will be worth $3,627.93, which suggests there’s rising optimism among traders, reflecting a bullish sentiment toward future prospects.
Let’s not forget that the SEC approved the listing of spot Ethereum ETFs, which came as a surprise to many. Trading won’t begin right away, and it’s not clear how long the approval process might take.
Why Does It Matter If Ethereum Is a Security or A Commodity?
Ethereum is now a commodity, just like Bitcoin, piquing the curiosity of traders, investors, and users worldwide. Indeed, it displays some of the characteristics aligning with the definition of security under the Howey test, namely:
- Acquiring ETH requires an investment of money (staking, restaking, and DeFi mechanisms)
- It operates as a decentralized platform powered by blockchain technology with smart
- contract functionality
- Many purchase ETH in hopes of making a profit, even if it’s not without risks
Still, no central authority or entity is responsible for managing or controlling the network, and ETH’s utility overrides its speculative nature, enabling transactions, executing smart contracts, and participating in DeFi.
The categorization of Ethereum as a commodity or a security matters because each classification has its own regulatory requirements, market perceptions, and investment implications.
According to a professor at the University of Arkansas School of Law, the fact that the SEC approved eight spot Ethereum ETFs in May 2024 doesn’t necessarily mean that ETH is a commodity, highlighting there already are ETFs with commodities as underlying assets.
The question now is: Why did the watchdog of the financial markets end its investigation? Chances are the agency didn’t have enough evidence to convince the court that Ethereum is a security. Put simply, the SEC wanted to avoid an upsetting defeat at all costs.
For a long time, the cryptocurrency community has complained that the SEC refuses to provide guidance on how the Howey investment contract test applies to Ethereum and similar assets.
Ripple’s Top Legal Officer Raises Questions After the SEC Formally Drops Its Investigation
Ripple was sued by the SEC in December 2020 for selling XRP as an unregistered security, and the outcome of the lawsuit has far-reaching consequences for the cryptocurrency industry.
In July 2023, Judge Analisa Torres ruled that the XRP token isn’t a security, but institutional sales broke the law, with many investors agreeing not to sell their tokens until a certain period of time has passed, meaning that XRP acted as a speculative investment.
The SEC’s decision to close the investigation into Ethereum could overturn the programmatic sales of XRP ruling or at least influence the pending court ruling.
Stu Alderoty, Ripple’s Chief Legal Officer, expressed his thoughts and opinions about the SEC vs. Ethereum case, referring to the agency’s decision as an important victory for the cryptocurrency community, but expressed uncertainty about whether or not ETH offers and sales are securities.
Altcoin holders expect the SEC to treat XRP in the same way as Ethereum. If Ripple gets a different treatment, it’ll prove the SEC acts arbitrarily and capriciously, and we obviously can’t expect otherwise.
Lately, the watchdog of the financial markets has stepped up its enforcement actions in the blockchain space, claiming that most digital assets are securities and, therefore, subject to strict regulations. A ruling in favor of Ripple would determine the agency to keep its current strategy.
Wrapping It Up
On June 19, 2024, the SEC took everyone by surprise when it closed its monthslong investigation into whether Ethereum is a security, tacitly confirming the cryptocurrency’s status as a commodity.
According to Consensys attorney Laura Brookover, things have taken a turn for the better since the blockchain software company filed its lawsuit in late April, ending with today’s development.
In spite of this momentous victory, the cryptocurrency industry needs a clear regulatory framework with which it can reasonably comply.
Given the expansion of activities on the blockchain and the interest expressed by banks and other traditional intermediaries, the “let crypto experiment in a closed environment” approach is no longer viable.
Ethereum may or may not reach $4,000 after the SEC’s decision. Only time will tell. Even if the cryptocurrency seems to be recovering, it’s still in the red in the 14-day chart, meaning it’s stagnating.
It’s highly unlikely Ethereum will rally without Bitcoin’s support, which is prone to extreme price volatility.
The two assets are highly correlated, so if BTC goes up, it’ll have an impact on the value of ETH, and Bitcoin should continue to rise during 2024, possibly reaching a new all-time high above $70,000.