The legal battles over how cryptocurrencies, particularly Ethereum, should be regulated in the U.S. have taken a new turn. As per the latest court filings, SEC Chair Gary Gensler believed ethereum was a security for at least a year. This is crucial because if ETH is a security, it would have to follow stricter regulatory guidelines that apply to traditional financial assets like stocks.
These revelations come after ConsenSys, a firm closely linked to Ethereum, filed a lawsuit against the SEC. Following a Wells notice, the blockchain company challenged the regulator’s approach, arguing that its ad hoc enforcement actions were an overreach of its power. A Wells is seen as a formal indication that the SEC might sue them for not complying with securities laws.
Additionally, ConsenSys alleged that labeling a software developer who creates user-controlled tools as a securities broker could hinder web3 developers from independently constructing future-generation applications and prevent access to market participants and institutions who have a stake in the world’s second-largest blockchain.
The SEC cannot be allowed to arbitrarily expand its jurisdiction to regulate what is plainly and by the SEC’s own prior admission a commodity. We are hopeful that the case brings attention to—and ultimately halts—the SEC’s reckless approach and restores the kind of regulatory certainty and sanity that is so essential to Web3 technologies and a well-functioning innovation economy.
Ethereum’s Legal Limbo: From Hinman’s Declaration to SEC’s Investigation
Before that, the SEC formally investigated Ethereum in March 2023. This allowed them to subpoena people and companies involved in Ethereum’s trade, trying to determine if there were any violations of securities law. This was in stark contrast to their previous instance.
In 2018, a former SEC official, Bill Hinman, stated that Ethereum was not a security, leading to a significant positive reaction in the market. His view was that Ethereum and Bitcoin were “sufficiently decentralized,” meaning they shouldn’t be regulated as securities. Adding to the confusion over how various U.S. agencies perceive and regulate cryptocurrencies, the Commodity Futures Trading Commission [CFTC] also classified ETH as a commodity.